Wash "hawkish debut", Goldman Sachs downgrades gold target price, "if interest rates really rise this year, the price of gold will further decline."

Due to the double impact of the Federal Reserve's decision to not cut interest rates until 2026 and the hawkish stance of the new chairman Wash, Goldman Sachs has significantly lowered its year-end gold target price for 2026 from $5400 per troy ounce to $4900, and has characterized its recent strategy as "tactically cautious", warning that if interest rates are raised, the price of gold may further decline to $4440. In a report released on June 18th, Goldman Sachs' commodities research team clearly outlined the two reasons for the target price adjustment: firstly, their economists had delayed the Fed's last two rate cuts to 2027 earlier this month, meaning there will be no more rate cuts in 2026, significantly dampening expectations for demand for interest rate-sensitive gold ETFs; secondly, Wash's first FOMC meeting as Fed chairman released a "more hawkish than expected" signal, which greatly alleviated concerns in the market regarding the independence of developed market central banks, making the demand for gold as a macro policy hedge tool not expected to rebound as previously anticipated. Regarding the recent downside risks, Goldman Sachs provided specific stress test estimates: if the Fed implements two rate hikes this fall, the net selling pressure from interest rate-sensitive ETF holders combined with the fading macro hedging demand could push the price of gold down to $4440 per troy ounce by the end of the year - nearly $500 lower than the benchmark prediction. The report points out that continued central bank gold purchases will provide some cushion, keeping the price of gold slightly higher than current levels even in this bearish scenario. Nevertheless, Goldman Sachs maintains a constructive long-term outlook for gold. The report suggests that geopolitical developments in Iran and regions such as Greenland and Venezuela may eventually accelerate private sector diversification into gold, potentially leading to a significant breakthrough in the mid-term price of gold above $6000 per troy ounce. The rate cut coupled with the hawkish stance triggers target price adjustment Goldman Sachs analysts Lina Thomas and Daan Struyven detailed the two core logics behind the target price adjustment in their report. First, changes in the interest rate path directly suppress demand for gold ETFs. Goldman Sachs economists had already delayed the Fed's last two rate cuts to June and December 2027, compared to the previous expectations of December 2026 and March 2027, leading to pressure on this part of demand due to the highly correlated allocation decisions of some gold ETF holders with the trend of the federal fund rate. Second, the hawkish stance at Wash's first FOMC meeting exceeded market expectations. Goldman Sachs believes that this signal will limit concerns about the independence of developed market central banks in the next few quarters, thereby weakening the attractiveness of gold as a macro policy hedge tool. Goldman Sachs previously expected this demand to gradually recover to the level at the beginning of January 2026, but now the forecast has been adjusted to a more stable level. The report also points out that Jerome Powell remains on the FOMC committee, and if the Democrats win the Senate in the midterm elections - with market forecasts showing a probability close to 50% - any new FOMC member nominations will need to be approved by the Democratic-controlled Senate, which to some extent restricts market concerns about the central bank's independence becoming more extreme. Near-term downside risk: Gold prices may fall to $4440 under rate hike scenario Goldman Sachs maintains a tactically cautious stance on the near-term price trend of gold and quantifies the downside risks. The report notes that despite most of the accumulated excess positions and bullish option demand having been absorbed, Wash's hawkish debut may still trigger further retreat in macro policy hedge demand. Goldman Sachs' base scenario does not include rate hikes, but if they do occur - especially if the market deems the rate hikes to exceed what the data can support - the macro hedge demand for gold will persistently diminish. In this scenario (assuming two rate hikes in the fall of 2026), combined with the net selling pressure of interest rate-sensitive ETF holders, Goldman Sachs estimates that the price of gold could fall to $4440 per troy ounce by the end of the year, about 9% lower than the benchmark prediction of $4900. With central banks continuing to buy gold providing some cushion, this level remains slightly higher than the current price. Structurally solid trend of central bank gold purchases provides core support for gold prices Despite the tactically cautious outlook, Goldman Sachs maintains a positive structural view on gold prices, with the core support coming from the global trend of central banks consistently diversifying their gold holdings. The latest calculations from Goldman Sachs show that global central bank gold purchases in April 2026 (not seasonally adjusted) were about 59 tons, with China contributing around 24 tons. Calculating with a 3-month (seasonally adjusted) and 12-month moving average, the current pace of gold purchases is about 50 tons per month - slower than the 67 tons per month in 2024, but still significantly higher than the 17 tons per month before the Russian central banks assets were frozen in 2022. Data from the World Gold Council's latest survey confirms this trend: among the 76 central banks surveyed from February to May this year, a whopping 45% expect to increase their gold reserves in the next 12 months, setting a historical record; about 90% expect overall global gold reserves to rise, with the rest predicting a roughly stable level. Based on this, Goldman Sachs assumes that global central bank gold purchases will remain at 50 tons per month in 2026, dropping to 40 tons per month in 2027, which is expected to contribute around 9 percentage points to the year-end price forecast. Medium-term upside potential: Geopolitical risks may drive gold prices above $6000 Looking at the medium term, Goldman Sachs believes that the risks facing gold price forecasts are generally biased towards the upside. The report points out that the current proportion of gold in private investment portfolios is still relatively low, with significant room for growth. Developments in Iran and other geopolitical issues - including disputes surrounding Greenland and Venezuela - may ultimately accelerate private sector diversification into gold, potentially further strengthening this trend by affecting assessments of Western fiscal sustainability by external parties. Under an optimistic scenario, if macro policy hedge demand (i.e., demand for bullish gold options) rebounds to the level at the beginning of January 2026, Goldman Sachs believes that the price of gold could significantly break through $6000 per troy ounce by the end of the year. Additionally, speculative positions currently relative to historical averages are still at relatively low levels, and gold ETF holdings are below the reasonable level implied by the federal funds rate, the normalization of which would contribute an additional 4 percentage points to the medium-term price increase.