Gold's recent resurgence has further to run according to Goldman Sachs, which has upped its price target for the year end to US$2,700 per ounce from US$2,300 previously.
Traditionally, gold’s valuation has been closely linked to real interest rates, growth expectations, and the strength of the US dollar, says the investment bank.
These factors, however, fall short of explaining the metal's rapid appreciation by approximately 20% over the last two months, Goldman adds, amid a backdrop of fewer anticipated Federal Reserve rate cuts and robust growth trends in major economies.
A significant departure from conventional catalysts is the accelerated accumulation of gold by Emerging Market (EM) Central Banks and increased retail buying in Asia.
These actions are not merely spontaneous but are strategically aligned with current macroeconomic policies and geopolitical climates.
The US Federal Reserve's potential future rate cuts are expected to mitigate the prevailing headwinds from exchange traded funds (ETFs), further bolstering gold's market position.
Additionally, the upcoming US electoral cycle and fiscal settings may introduce 'right tail risks', creating a favourable environment for gold investors.
The divergence of gold’s price movement from its historical macroeconomic correlations necessitates a new analytical framework, adds the bank.
Gold’s role as a haven asset becomes pronounced during periods of both cyclical and structural fear, currently highlighted by diminishing confidence in the dollar-backed international monetary system.
The escalated gold accumulation by EM Central Banks is largely a response to sanctions fears, argues Goldman, indicating a strategic shift towards tangible assets.
Similarly, the robust demand in Asia, particularly China, is fuelled by concerns over economic instability and the depreciation of local currencies, exacerbated by troubles in the property sector.
What could spoil the party?
Goldman Sachs suggests a few elements that might halt gold’s current rise, notably a peaceful resolution to geopolitical conflicts in the Middle East and Ukraine, a cessation of gold acquisition programs by major EM Central Banks, stabilisation of China's economic growth, particularly in its property sector, and a possible hawkish pivot by the US Federal Reserve.
In the bank’s view, chances of a simultaneous occurrence of these in the near term remain low.
This scenario underscores the continued positive outlook for gold’s market performance, driven by enduring structural fears and strategic market behaviours that favour real assets over traditional financial instruments.