- Goldman Sachs projects the price of gold will climb 8% to $3,000 an ounce by the end of 2025.
- They cite central bank buying, Fed rate cuts, and continued safe-haven interest as reasons.
- The commodity has already risen more than 30% to records highs so far this year.
A gold-buying spree has turned the yellow metal into one of this year's hottest investments.
Though the commodity has already soared more than 30% year-to-date, Goldman Sachs anticipates that there's even more upside in store next year.
In a note published Tuesday, the bank projected that gold will reach $3,000 an ounce by the end of 2025, implying an 8% increase from its current price.
It offered three reasons for the forecast:
First, high demand from central banks will continue, though Goldman does expect gold buying to slow next year.
Central banks have sought gold with new intensity since Western sanctions were placed on Russia for its invasion of Ukraine. Some countries treated this as a lesson to diversify reserves away from the greenback, prompting high demand for the bullion metal.
"We assume that central bank purchases will moderate to a monthly pace of 30 tons — about a third of the elevated 85 tons average monthly pace observed since 2022, but structurally higher than the 17 tons monthly average pace before the freezing of Russia's reserves—by end-2025," analysts wrote.
Second, easing US interest rates will gradually boost Western ETF holdings backed by gold.
Goldman expects the Federal Reserve to reduce the fed funds rate to the 3.25%-to-3.5% range midway through 2025. Since the gold doesn't yield interest, easing monetary policy typically boosts gold's competitiveness. When rates are high, the commodity loses out against other interest-bearing assets.
In a September note, Goldman found that gold-backed ETFs rise gradually for a six month period as rate cuts occur. This boost matters to the price of gold since rising ETF holdings bear down on the physical supply of the metal.
Third, safe haven investors will have more reason to keep piling into gold.
Goldman said speculative positioning has risen to high levels over geopolitical and inflationary concerns. The bank anticipates that this could normalize as uncertainty softens gradually after the election, which could prompt some near-term downside risk to the price of gold.
However, analysts wrote that gold will remain an attractive hedge in the long term amid a potential escalation of new tensions. These include trade disputes, threats to the Fed's independence, US debt fears, and the chance of a future recession.