Goldman Sachs: Recent violent fluctuations in gold prices suggest that central banks in various countries may temporarily slow down their demand for gold.

Last month, the price of gold once broke through the historical high of $5,500 per ounce, and the demand in the investment market is definitely one of the drivers, but the biggest buyers are undoubtedly the central banks of various countries. In recent years, the buying behavior of central banks around the world has directly pushed up the price of gold, but the recent drastic fluctuations in gold prices may temporarily slow down this demand. Goldman Sachs commodity analysts Lina Thomas and Daan Struyven pointed out in a report last week, "In discussions with market participants, the stewards of central bank reserves are still willing to buy gold to hedge geopolitical and financial risks, but they are more inclined to postpone purchases until prices stabilize." Goldman Sachs pointed out that market volatility is driven by diversified demand from the private sector, most of which is reflected through the structured gold options that amplify price fluctuations. This volatility has made some emerging market central banks more hesitant to actively buy at current prices, even though they still have a positive view of the market. According to data from the World Gold Council, central banks around the world will net purchase about 1,000 tons of gold in 2023 and 2024. This number will decrease to about 900 tons in 2025, but their purchase prices will be higher compared to the past two years. The price of gold fell to $4,400 earlier this month, but as of 10 am on Monday, it returned to the $5,100 level, reaching $5,167. Goldman Sachs analysts believe that the structural background has not changed. Since the 2022 Russia-Ukraine conflict led to the freezing of foreign exchange reserves, central banks around the world have reevaluated the risks of holding US dollar assets and started buying gold as an alternative asset. Assuming that private sector diversification will not further increase, Goldman Sachs' basic forecast is that market volatility will ease, central bank buying will accelerate again, approximately in line with the growth in 2025. The bank stated that with the potential increase in demand from private investors related to potential Fed rate cuts, by the end of 2026, the price of gold could rise to $5,400 per ounce. However, if diversification demand accelerates further - especially in the face of increasing concerns about fiscal risks in Western economies - market volatility may remain high. This is especially true if funds continue to flow through options. In this scenario, even if the increase in prices is greater, short-term demand from central banks may be suppressed.