Goldman Sachs: Gold volatility has significantly increased, central bank gold purchases will temporarily slow down.

The dominant variable in the gold market is shifting from "Buy or not" to "How big is the fluctuation." Goldman Sachs believes that the diversification demand expressed by the private sector through bullish options structures in gold has pushed up gold price volatility, temporarily suppressing central bank gold buying pace in the short term, but this decline should be temporary. Goldman Sachs analysts Lina Thomas and Daan Struyven pointed out in their report this week that the increase in bullish options demand forces traders who sell options to passively buy gold for hedging during the uptrend, mechanically amplifying the rally. More importantly, even a minor pullback may prompt traders to switch from "Buy on highs" to "Sell on dips," triggering stop-loss orders from investors and leading to further losses. Goldman Sachs noted that this chain of events was already evident in late January. Against the backdrop of rising volatility, central bank demand has slowed down, with demand in December 2025 at 22 tons, lower than the 12-month average of 52 tons. Goldman Sachs emphasized that central banks are still willing to buy gold to hedge geopolitical and financial risks but prefer to resume purchases after price volatility subsides, so the slowdown is more like "waiting for volatility to converge," rather than a trend shift. For investors, this means increasing the risk of short-term downside tail. Goldman Sachs warned that after options demand returns to record levels, some catalysts that typically only lead to moderate retracements could trigger larger gold price pullbacks, with the estimated downside boundary around $4,700 per ounce. However, in the medium term, Goldman Sachs reiterated its bullish view on gold, expecting gold prices to slowly rise to $5,400 per ounce by the end of 2026 in the base scenario. Options structures increase volatility, minor pullbacks may amplify losses Goldman Sachs associates the recent increase in gold price volatility to diversified demand from the private sector, with part of it expressed through bullish options structures. The report cited data from Bloomberg and Goldman Sachs, stating that GLD, the largest gold ETF, has a record level of open bullish options interest (net of put options), becoming an important "proxy indicator" for rising volatility. Mechanically, as prices rise, traders who sell bullish options are forced to buy gold to maintain their hedge, amplifying the rally; and once a minor pullback occurs, the hedging behavior of traders may reverse, switching from "chasing highs" to "selling on downturns," potentially triggering stop-losses from investors and causing further losses. Goldman Sachs cautioned that similar "stop-loss stampedes" had occurred in late January. Central bank demand temporarily paused: 22 tons in December 2025, below the 12-month average of 52 tons Goldman Sachs noted that the rise in volatility had already affected short-term behavior on the central bank's side: their nowcast of central bank gold purchases showed 22 tons in December 2025, below the current 12-month average of 52 tons. Goldman Sachs had previously considered the "ongoing slowdown in central bank demand" as an important observation for the gold price outlook, but this slowdown is now judged to be temporary. Goldman Sachs cited three factors to support this judgment: their communication with central banks, structural changes in risk perceptions by reserve managers after the freezing of Russia's foreign exchange reserves in 2022, and their view that the gold allocation of large emerging market central banks is still significantly below "possible target levels." The report stated that reserve managers still view gold as a tool for hedging geopolitical and financial risks, but they are more willing to wait for prices to stabilize before accelerating purchases. Two scenarios: gold purchases rise as volatility declines, higher risks if volatility persists Goldman Sachs presented two scenarios to depict the combination of "volatility - central bank demand - gold price path." In the base scenario, where the private sector does not introduce additional diversified demand increments, gold price volatility subsequently decreases. In this framework, Goldman Sachs expects central bank gold purchases to accelerate again, with the overall accumulation rate following a similar pace as in 2025; while private investors mainly increase their allocation after rate cuts by the Federal Reserve. Combining these factors, gold prices are projected to slowly rise in the convergence of volatility, reaching $5,400 per ounce by the end of 2026. The upward scenario assumes further strengthening of diversified demand from the private sector, driven by "perceptions of fiscal risks in certain Western economies." Goldman Sachs believes that when such demand is expressed through bullish options structures, it naturally leads to higher volatility and may temporarily suppress central bank demand from emerging markets. In this scenario, Goldman Sachs sees significant upside risks to its gold price forecasts, but volatility is expected to be more sustained. Goldman Sachs tactical advice: Mild catalysts could trigger deeper retractions, downside boundary around $4,700 per ounce On a tactical level, Goldman Sachs stated that GLD bullish options demand had rebuilt to record levels after a washout in late January. This means that even factors that typically only cause limited pullbacks, such as "moderate stock market adjustments due to margin-related liquidations" or "mild geopolitical cooling," could lead to extraordinary gold price retracements. Goldman Sachs estimated the downside boundary of such retracements to be around $4,700 per ounce. At the same time, Goldman Sachs stated that, similar to the performance in late January, retracements may be temporary, as client feedback indicates that there is still potential demand for "buying on dips." Based on this, Goldman Sachs reiterated its medium-term trajectory for gold prices to be biased upwards and maintained its recommendation to go long on gold. This article is reproduced from "Wall Street See", GMTEight editor: Zhang Jinliang.