Executive Summary
Central Bank Buying (Temporarily) Slows on Volatility
Over recent months, a rise in private sector diversification demand — partly expressed through gold call-option structures — has driven elevated volatility in gold prices. This dynamic occurs because dealers selling these calls must buy gold as prices rise to maintain hedges, and conversely, sell into weakness during pullbacks, which can mechanically amplify price moves.
Consequently, this rise in volatility has led to a slowdown in the central bank demand nowcast to 22 tonnes in December 2025. However, analysts see this slowdown as temporary, noting that reserve managers remain willing buyers to hedge geopolitical and financial risks but are delaying purchases until prices stabilize.
"Our conversations suggest that reserve managers remain willing buyers of gold to hedge geopolitical and financial risks but prefer to delay purchases until prices stabilize."
Market Scenarios and Tactical Outlook
The report outlines a medium-term upward trajectory for gold prices under two primary scenarios. The base case assumes no additional private sector diversification, which implies a moderation in volatility, a re-acceleration in central bank buying, and a steady price climb to $5,400/toz by end-2026. The upside risk scenario envisions further private sector diversification driven by perceived fiscal risks, leading to significant upside risk to forecasts alongside persistently higher volatility.
Tactically, the market remains vulnerable to larger-than-usual drawdowns from modest catalysts, with a lower bound estimated around $4,700/toz, though any dips are expected to be short-lived due to pent-up investor demand.
Two Scenarios for Gold
- Base Case — No Additional Private Diversification: A somewhat conservative scenario implying a moderation in gold price volatility, re-acceleration of central bank purchases, and a gradual climb to $5,400/toz by year-end.
- Upside Risk — Further Private Diversification: Driven by perceived fiscal risks across several Western economies, this scenario would sustain elevated volatility but carry significant upside price risk beyond the base case target.
Investment Conclusion
Goldman Sachs maintains a Long Gold recommendation with a base case target of $5,400/toz by end-2026. The temporary slowdown in central bank accumulation — from a 12-month average of 52 tonnes to just 22 tonnes in December 2025 — is a volatility-driven pause, not a structural shift in reserve manager behavior.
As gold price volatility moderates, central bank buying is expected to re-accelerate, providing the primary fundamental pillar for the upward price trajectory. Fed rate cuts add a secondary tailwind through lower opportunity costs for holding gold.
The risk profile is asymmetrically skewed to the upside. While short-term drawdowns to $4,700/toz are possible from modest catalysts, these dips represent buying opportunities given pent-up demand. In the upside scenario, further private sector diversification driven by Western fiscal concerns could push gold materially above the $5,400 target, making current levels an attractive entry point for strategic positioning.
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