Goldman Sachs commodities strategist Lina Thomas anticipates that gold prices could rise to $3,000 per ounce by the end of 2025. This projection comes as central banks in emerging markets continue to increase their gold purchases. Over the past 12 months, gold prices have climbed by about 40%, surpassing $2,700 per ounce. Gold prices are often influenced by interest rates, and investors are now considering the impact of potential rate cuts by the Federal Reserve.
Thomas explains that gold, as a non-interest-bearing asset, becomes less attractive to investors when interest rates are high, and more appealing when rates decline. The correlation between gold prices and interest rates persists, but heavy gold purchasing by central banks since 2022 has altered this dynamic. According to Goldman Sachs, a physical demand increase of 100 tons can elevate gold prices by at least 2.4%.
The increased buying of gold by emerging market central banks began after the Ukraine crisis in 2022, which led to the freeze of assets held by Russia's central bank. In contrast, central banks in developed markets, such as the United States, France, Germany, and Italy, hold significant reserves of gold, comprising about 70% of their total reserves. Thomas notes that some emerging market central banks are beginning to catch up with their developed counterparts.
Investors are also concerned about the sustainability of the U.S. debt, which stands at approximately $35 trillion, accounting for about 124% of its GDP. With substantial portions of foreign exchange reserves held in U.S. Treasuries, some policymakers are increasingly worried about the financial risks posed by U.S. fiscal policies. As the U.S. presidential election approaches, Western investors are returning to the gold market, driven by its potential to hedge against geopolitical shocks, heightened trade tensions, Federal Reserve risks, and debt concerns.
Goldman Sachs suggests that even if central banks slow their gold purchases, the increasing holdings in gold ETFs may intensify competition among Western investors for gold. Thomas states that lower interest rates have piqued the interest of long-term investors in holding gold, and central banks are likely to continue increasing their gold reserves.
