Decode foreign exchange platform: Gold converges and shocks, Goldman Sachs raises its year-end target to $3,300

The multiple factors that have kept gold prices rising have focused the market's attention on the traditional safe-haven asset. On March 27, Goldman Sachs Group raised its forecast for gold prices by the end of 2025 from $3,100 to $3,300 an ounce, reflecting optimistic expectations for central bank gold purchases and ETF inflows.

Gold prices have rallied 15 per cent this year and this month breached the psychological barrier of $3,000 to a record high, continuing last year's strong performance.Decode Forex PlatformAccording to the analysis, the Federal Reserve's shift to loose monetary policy at that time provided some support for gold prices.

Lina Thomas and Daan Struyven, analysts at Goldman Sachs, noted that "central bank demand for gold has exceeded expectations, especially as emerging market central banks have increased their purchases by about five-fold since the Russian reserve freeze in 2022. This trend marks a structural shift in reserve management behavior that will not be reversed anytime soon."

Data show that between November and January this year, the average monthly purchase of gold by central banks reached 190 tons, far exceeding the previous estimate of 50 tons/month. Goldman Sachs forecasts that the Asian powers are likely to maintain a "rapid accumulation" trend for at least the next three years, further strengthening the tight balance between supply and demand for gold.

Flows into gold-backed ETFs have been another key driver of gold's rally, with Goldman Sachs analysis showing that ETF inflows "exceeded the upper limit of expectations", mainly driven by investors' safe-haven demand for heightened macro uncertainty. The prospect of two Fed rate cuts this year also provides a favorable environment for ETF funds to return.

"While ETF inflows are typically linked to the Fed policy rate, history suggests that inflows can grow more than expected during periods of persistent macro uncertainty," Thomas and Struevin stressed. Gold could surge to $3,680 an ounce if hedge demand accelerates to push ETF holdings closer to their 2020 peak.

The scenario highlights investors' heightened sensitivity to U.S. policy uncertainty, particularly the uncertain outlook related to the Trump administration's disruptive agenda in diplomacy and trade.

Structural changes in central bank gold purchases have provided long-term support for gold prices. Since 2022, emerging market central banks have significantly increased their gold holdings, with average monthly gold purchases jumping from low levels before the epidemic to 70 tonnes today, according to Goldman Sachs. This behavior is not only a direct response to geopolitical risks, but also reflects the deepening trend of global reserve diversification.

Analysts believe that this trend is difficult to reverse in the short term, potentially setting a higher floor for gold prices.

However, the market remains divided on the long-term direction of gold prices. Some institutions predict that if the pace of interest rate cuts by the Federal Reserve slows or the dollar strengthens, gold prices may face correction pressure.

However, Goldman Sachs maintained a bullish stance, arguing that "even in a pessimistic scenario, structural demand will limit the downside of gold prices." At the same time, market surveys show that some traders are cautious about expectations that increased production from non-OPEC + countries may ease supply constraints, which may indirectly affect oil prices and related commodity markets, thus affecting gold.