Precious Metals Review

“Goldman Sachs told clients in a note on Friday that strong central bank gold purchases in May are likely to provide a price floor for gold amid near-term pressure from hawkish Federal Reserve pricing. 

Analyst Lina Thomas said Goldman Sachs’ nowcast estimates central bank purchases at 81 tonnes for May, or 67 tonnes per month on a three-month seasonally adjusted basis, compared with a pre-2022 average of 17 tonnes. 

The bank believes the recent re-acceleration in its nowcast, with a large contribution from China, “suggests that central bank buying is likely to provide a price floor amidst likely temporary downside gold price pressure from hawkish Fed pricing.”

Goldman Sachs continues to view elevated central bank gold accumulation as “a multi-year trend,” as central banks diversify their reserves to hedge geopolitical and financial risks. The bank maintained its assumption of average monthly central bank buying of 50 tonnes in 2026 and 40 tonnes per month in 2027.

Goldman Sachs said EM central bank diversification following the 2022 freezing of Russia’s reserves “remains the anchor” of its $4,900 per troy ounce end-2026 gold price forecast. 

In the near term, the bank said gold faces headwinds from reduced demand for macro policy hedges as markets price in potential Fed hikes this year, though it expects this pressure to reverse as its economists forecast no Fed rate hikes.

Over the medium term, Goldman Sachs said risks to its price forecast remain skewed to the upside, noting gold’s share in private portfolios remains low and recent geopolitical developments could accelerate diversification beyond central banks to private investors.”

“Gold held ​steady on Friday, but was on track for its biggest weekly loss in ‌six as escalating U.S.-Iran tensions drove energy prices higher, fuelling inflation fears and reinforcing expectations of U.S. interest rate hikes.

Spot gold was unchanged at $3,970.35 per ounce by 0932 a.m. EDT (1332 GMT), holding near its lowest ​level since July 1. Prices are down more than 3% so far for the week. ​U.S. gold futures for August delivery fell 0.5% to $3,973.10.

The U.S. dollar rose ⁠for a second straight session, making bullion more expensive for overseas buyers.

“The main drivers of ​the selloff in gold have been a stronger U.S. dollar and higher global inflation fears, which ​have sent global interest rates higher,” said Chris Gaffney, president of world markets at EverBank.

The U.S. escalated its renewed bombing campaign on Iran, hitting bridges and an airport. Tehran responded with strikes on U.S. bases across the Middle East.

Brent crude oil ​prices were up more than 14% for the week following the attacks.

Bullion has fallen about 25% since ​the U.S.-backed war with Iran began in late February, pressured by expectations that war-driven inflation could keep interest ‌rates ⁠higher for longer.

While gold is seen as a hedge against inflation, higher rates typically weigh on the non-yielding metal.

“Recent data have decreased the probability of a rate hike at the next FOMC meeting, but global interest rates continue to climb and the recent increase in oil prices could ​drive the Federal Reserve ​to take a ⁠more hawkish stance on U.S. interest rate policy,” Gaffney said.

Traders are now pricing in about a 53.3% chance of a U.S. interest rate hike ​in September, according to the CME FedWatch Tool.

On Thursday, Fed Vice ​Chair Philip ⁠Jefferson suggested he would be open to raising rates if there was no near-term improvement in inflation.

However, “gold’s share in private portfolios remains low, and recent geopolitical developments, including Iran and broader tensions, may accelerate ⁠diversification ​beyond central banks to private investors,” Goldman Sachs said ​in a note.

Among other metals, spot silver fell 0.8% to $55.05, platinum dropped 3.3% to $1,563.49, and palladium slipped 1.5% to $1,230.42. All ​three metals were headed for weekly losses.”