A recent research report from Goldman Sachs (GS) has made a notable forecast: gold prices could reach $4,900 per ounce by the end of 2026. Despite the risk of short-term volatility, the precious metal's broader upward trajectory continues to be supported by strong structural fundamentals.

Here are the three key factors shaping the gold market's trajectory, according to Goldman Sachs' analysis.

The "Hidden" Heavy Buying by Central Banks

One of the most important factors supporting gold's upward momentum is the years-long accumulation by central banks, driven by efforts to hedge against geopolitical and financial risks.

• Record-level accumulation: GS forecasts that central banks will purchase an average of 50 tonnes of gold per month in 2026 and 40 tonnes per month in 2027. This would be significantly higher than the average of 17 tonnes per month recorded during the period before 2022.

• China's "footprint": In July alone, GS estimates that China purchased approximately 35 tonnes of gold, making it the largest buyer. This figure is nearly double the official reported data, representing an estimate around 75% higher.

The Fed Holds Rates Steady & Gold ETF Inflows Recover

Alongside official-sector demand, private investors are also returning to the gold market.

• Economists expect easing inflation pressures to lead the U.S. Federal Reserve (Fed) to keep interest rates unchanged this year.

• This could encourage stronger private investment flows back into gold ETFs following a subdued first half of the year. In addition, gold still represents a relatively small share of private investment portfolios. Geopolitical tensions, including developments surrounding Iran, are also prompting investors to turn to gold as a way to diversify their assets beyond the traditional banking system.

Derivatives Markets Could Amplify Volatility

The rapid expansion of the options market is creating a double-edged sword for gold prices.

• Demand for gold call options as a hedge against macroeconomic and policy risks is increasing.

• As gold prices rise and approach key strike levels, traders may be required to purchase additional gold to hedge their short positions. This dynamic could amplify the upward move, potentially pushing prices significantly higher than the $4,900 forecast.

What Happens If the Fed Raises Interest Rates?

Although the base-case scenario remains relatively bullish, GS also warns of two-way volatility.

If markets begin pricing in a higher probability of Fed rate hikes, demand for macroeconomic hedges could weaken. The sensitivity of ETF flows, combined with traders aggressively unwinding their hedging positions, could trigger a sharp correction.

Under this scenario, gold prices could fall back to around $4,440 per ounce by the end of 2026. While this would be significantly below the $4,900 base-case target, the price would still remain above current levels, supported by continued central-bank demand.

Source: Kitco