Gold Has Been Hot. Why Goldman Is Still Bullish

Gold hit a record high last month. Goldman Sachs analysts think it's not done rising.

The firm in a Monday note said it has a price target of $2,700 per ounce on the precious metal. That's actually a bit less bullish than before, since the bank is now targeting early next year instead of later in 2024 — but that's still an 8% premium over the $2,525 high on Aug. 27. Gold futures ticked higher Wednesday to around $2,524 an ounce.

Rate Cuts and Geopolitical Issues

The Federal Reserve has signaled that it will begin cutting its benchmark interest rate starting at its meeting later this month. Those cuts “are poised to bring Western capital back into the gold market,” Goldman analysts said. 

Some investors are attracted to gold as rates fall because the payouts fixed-income investments pay become lower, making gold — which doesn't pay a dividend — look more attractive by comparison.

Goldman said that gold offers investors a chance to hedge against geopolitical shocks, such as tariffs or a rise in financial sanctions enacted by the U.S. Goldman suggested that gold offers upside of 15% if sanctions rise as much as they have since 2021 or if U.S. credit default swap spreads widen by 13 basis points due to debt fears.

Central bank gold purchases have tripled since mid-2022, which Goldman attributed to fears over U.S. sovereign debt and possible financial sanctions. 

Some Reasons for Caution

Goldman expects gold to hit $2,700 in early 2025, compared to previous expectations of year-end 2024. The firm attributed the delay to the “particularly price sensitive Chinese market” that was affected by gold’s recent rally. 

The firm stressed the importance of not relying exclusively on one commodity. “We strongly believe in the diversifying role of commodities in investment portfolios based on several structural drivers, including commodities’ hedging role against supply disruptions,” the analysts said.