-
Gold just crashed after a record run, but big money is likely not backing down.
-
Central banks and institutional investors are expected to boost gold exposure amid global uncertainty.
-
Goldman Sachs cites speculative unwinds and spillover from the silver market for this week’s price drop.
Gold’s rally hit a wall this week, with prices plunging after a record run — but institutional interest is likely to remain and support prices, according to Goldman Sachs.
Prices of the yellow metal have been volatile, with spot gold hitting an all-time high of about $4,380 per ounce on Monday before logging its largest single-day slump in 12 years on Tuesday. The sell-off extended into Wednesday, sending spot prices to around $4,090 per ounce by late evening in New York.
Goldman attributed the pullback to a rush of speculative unwinds in the options market and a spillover from the silver trade.
The bank remains “structurally bullish gold,” wrote analysts Lina Thomas and Daan Struyven in a Wednesday note.
Goldman’s analysts said a surge in ETF inflows and client feedback signals that major long-term investors — from sovereign wealth funds to pensions and asset managers — are planning to add more gold to their portfolios as a way to diversify risk.
“These investors typically operate on multi-quarter approval cycles and multi-year horizons, implying upside risk to our forecast,” they wrote.
“If such private investors were to seek stores of value outside the financial system amid global macro uncertainty — including fiscal concerns — even modest reallocations from global bond and equity portfolios could substantially raise prices in the relatively small gold market,” they added.
Goldman is sticking with its $4,900-per-ounce target by the end of 2026.
At the same time, central banks are expected to remain steady buyers. Their purchases likely picked up again in September and October, following a seasonal post-summer lull, according to Goldman.
Those consistent central-bank flows, combined with renewed ETF inflows after the Federal Reserve’s rate cuts, provide a “structurally strong demand backdrop,” Goldman’s analysts wrote.
Even before the recent surge, gold prices had been climbing for several years as central banks loaded up on the precious metal following sweeping Western sanctions against Russia over its invasion of Ukraine.
Retail investors joined the party in recent months, fueling gold’s record-setting blitz.
“As gold’s value will either be left unaffected by fiscal uncertainties, or benefit in the context of broad US dollar depreciation, we believe there is still scope for central banks to further diversify their reserve holdings in gold,” analysts from Lombard Odier wrote in a note on Tuesday, adding that the institutions have steadily built up their gold holdings since 2008.
Read the original article on Business Insider
