Goldman Sachs continues to be strongly optimistic about gold!

Goldman Sachs analyst Stephen Quinn said in a report entitled “Go for Gold” this week that the price of gold among commodities is most likely to rise, maintaining the target price of 2,700 US dollars/ounce in early 2025. Based on Tuesday's spot gold price calculation, Goldman Sachs believes that by the beginning of next year, the gold price will still have room to rise by more than 8%.

The forecast is for three reasons:

US debt crisis: We believe that global central bank purchases have tripled since mid-2022 due to concerns about US financial sanctions and US sovereign debt. This is structural, and this will continue regardless of whether concerns occur.

The Federal Reserve cuts interest rates: The Fed's interest rate cuts will attract Western capital back to the gold market, and the sharp rise in gold prices in the past two years has hardly occurred.

Hedging value: Gold provides an important hedging value for portfolios to withstand geopolitical shocks such as tariffs, Federal Reserve dependency risk, and debt concerns.

Goldman Sachs believes that as concerns about the US debt crisis intensify, the US credit default swap (CDS) spread widens by 1 standard deviation (13 basis points), then there will even be room for a 15% increase in gold prices.

In a research report released in July, Goldman Sachs pointed out that physical gold demand in the Chinese market still dominates. Considering that Chinese consumers are highly sensitive to prices, Goldman Sachs expects that for every 10% drop in gold prices on the Shanghai Gold Exchange (SGE), China's physical gold demand will increase 16%.

However, since the Chinese gold market is very sensitive to prices and is absorbing recent surges, the price of gold may not break through the 2,700 US dollar mark in the second half of the year. Of course, this price sensitivity is also likely to re-stimulate Chinese consumers' interest in buying in the face of a sharp drop in gold prices.

Regarding the trend of gold, some analysts have noticed that the strong upward trend in gold prices is usually accompanied by an increase in the volatility of gold (gold shows a skewed upward trading characteristic), but recently the opposite situation has occurred, and the volatility of gold has declined sharply.

This means that if the price of gold rises as expected by Goldman Sachs, then holders of call options can choose to exercise the option and buy gold at a lower cost than the market price, thereby making a profit.

However, in the short term, we need to pay attention to the “warning signs” sent by the options market. Quinn wrote:

At the end of October, when skewed trading was close to the current point, the spot gold price was around $1,900.