Goldman Sachs Slashes Gold Target by $500 as Fed Rate Cut Hopes Dim following Hawkish Signals

Goldman Sachs Slashes Gold Target by $500 as Fed Rate Cut Hopes Dim following Hawkish Signals​

Re-evaluating Bullishness: Why Goldman Sachs Revised its Gold Outlook​

Goldman Sachs has significantly tempered its forecast for the price of gold, reducing its year-end target by $500 an ounce. This downward adjustment stems from a shift in market expectations regarding Federal Reserve rate reductions. The bank’s economists now do not anticipate the Fed cutting rates this year.

The revised target set by Goldman Sachs is $4,900 per ounce for December. Despite the reduction, analysts Lina Thomas and Daan Struyven maintain that gold is still expected to gain ground in the second half of the year. However, their outlook remains "tactically cautious," noting both near-term downside risks and medium-term upside potential.

Fed Policy Uncertainty Drives Down Gold Projections​

The precious metal has faced challenges recently. Initial market enthusiasm driven by Middle East tensions lifted energy prices, which had boosted expectations for tighter monetary policy globally. This week, while the Federal Reserve held interest rates steady, policymakers signaled a growing inclination toward rate hikes this year. New Chairman Kevin Warsh also vowed to restore price stability.

The primary catalyst for the forecast reduction was a lower projection for inflows into gold-backed exchange-traded funds. The analysts noted that expectations for US rate cuts were pushed back from June and December of next year to subsequent dates. Previously, reductions were seen in December 2026 and March 2027.

Macro Risks and Central Bank Activity Support Gold Prices​

Concerns over central bank independence may be limited given the “surprisingly hawkish” first Fed meeting under Warsh’s leadership. Warsh was appointed by President Donald Trump, who had previously criticized his predecessor for not aggressively enough reducing rates.

Despite these headwinds, supporting factors remain for gold. Official sector purchases are projected at 50 tons per month this year and 40 tons per month next year. These consistent central bank activities provide a structural foundation for the precious metal.

Potential Rate Hike Scenarios Impact Gold Demand​

If the Fed proceeds with rate hikes, the analysts warn that demand for gold as a macro policy hedge could "unwind more persistently." In such a scenario, they project gold prices to reach $4,400 by year-end.

Rob Kaplan, vice chairman at Goldman Sachs and former Dallas Fed president, highlighted this risk in an interview with Bloomberg Television. He suggested that the Fed may need to raise rates as early as September if inflation remains elevated.

Market Movement: Gold Stalls Amidst Volatility​

Gold recently traded near $4,168 per ounce, placing it on track for a third consecutive weekly decline. This comes after gold had previously rallied to nearly $5,600 an ounce at the close of January. In May, prices capped a third straight monthly loss, indicating ongoing volatility in the commodity market.