As gold prices plummet, Goldman Sachs remains "firmly bullish": maintaining a target price of $4,900 by the end of next year, with even "upside risks."

Despite gold prices falling more than 8% this week, Goldman Sachs remains firmly bullish.

According to the news from the trend trading desk, on October 22, Goldman Sachs analysts Lina Thomas and Daan Struyven published a research report, reiterating their target price of $4,900 per ounce by the end of 2026, and emphasizing that this forecast even carries "upside risk."

Goldman Sachs believes that the current sell-off is mainly driven by the unwinding of speculative positions and the spillover effect from the silver market, rather than a deterioration in fundamentals. The real "smart money," including central banks, ultra-high-net-worth individuals, and long-term asset allocation institutions, continues to flow in as structural buyers.

Goldman Sachs further emphasized that due to the awakening of allocation demand from large institutional investors, the target price of $4,900 per ounce even carries "upside risk." On Wednesday, spot gold briefly fell to just above the $4,000 mark but then rebounded with support.

(Spot gold fluctuated widely above $4,000 on Wednesday)

Structural Buying Supports the Logic of Rising Gold Prices

In stark contrast to the rapid in-and-out of speculative funds, Goldman Sachs emphasizes that the "sticky" structural demand supporting a long-term bull market for gold remained strong during September and October.

Goldman Sachs pointed out that this "sticky" capital flow mainly comes from:

Seasonal Purchases by Central Banks:

• After a quiet summer (with only 21 tons purchased by central banks in August), central bank purchases may see a seasonal rebound in September and October, consistent with the accelerated pattern observed in previous years after summer.

Strategic Allocation by ETFs and Ultra-High-Net-Worth Individuals:

• Driven by expectations of Federal Reserve interest rate cuts and the need for portfolio diversification, gold ETFs are expected to see renewed inflows.
• At the same time, Goldman Sachs learned through communication with clients that physical gold purchases by ultra-high-net-worth individuals may have also increased in September and October. These capital flows are typically slow and long-term, and may not all be reflected in ETF data.

Goldman Sachs' model shows that a firm buying of 100 tons (including central banks, ETFs, and net managed funds) can lead to a 1.5%-2% increase in gold prices. In August, these holders increased their positions by 154 tons, which corresponds with the price increase, validating the model's effectiveness.

Rising Interest from Institutional Investors Brings Upside Risk

Based on the strong support from the aforementioned structural demand, Goldman Sachs reaffirms its optimistic forecast for gold prices, maintaining the target price of $4,900 per ounce by the end of 2026.

The report further reveals a greater potential driver for gold prices in the future, namely the continued entry of large long-term capital allocators.

Goldman Sachs noted that the recent speed of ETF inflows and client feedback indicate that many long-term capital allocators, including sovereign wealth funds, central banks, pension funds, private wealth, and asset management companies, are planning to increase gold as part of their strategic portfolio diversification. A study on 13F filings shows that as of 2020, about 70% of U.S. institutional investors had no exposure to gold, and among those with exposure, the average allocation was less than 2%.

These institutions typically require several quarters for the approval process, meaning that demand will continue to be released over the next few quarters. Goldman Sachs particularly emphasized that this presents significant "upside risk" to their target price of $4,900.

The report concluded that against the backdrop of increasing global macro uncertainty (including concerns about fiscal issues), if these large institutional investors were to reallocate even a "moderate" proportion from their vast global bond and equity portfolios into the relatively smaller gold market, it could have a tremendous uplifting effect on gold prices.