Goldman Sachs maintained its goal of rising the price of gold to 2,700 US dollars/ounce in 2025, saying that the rise in gold prices has only just begun. Because central banks around the world continue to buy gold, the Fed's interest rate cuts will push Western capital back into gold ETFs. Gold provides important hedging value for investment portfolios to cope with geopolitical shocks.
As capital continues to pour into gold and silver ETFs, these two major precious metals may still have more room to rise during the year.
Recently, Goldman Sachs analyst Robert Quinn and his team released a report saying that the rise in gold prices has only just begun, reaffirming their bullish view on gold and maintaining the goal of gold prices rising to 2,700 US dollars/ounce in 2025. There are three reasons: central banks around the world continue to buy gold; the Federal Reserve's interest rate cuts will push Western capital back into gold ETFs. Gold provides important hedging value for investment portfolios to cope with geopolitical shocks.
Since mid-August, gold ETFs have inflows of 3.3 billion dollars, and GLD and IAU have had no outflows for nearly a month. The Goldman Sachs ETF trading desk wrote in its weekly report:
“The latest information from the trading desk shows that demand for investing in spot gold through ETFs (such as GLD, GLDM, IAU) is increasing, and demand for gold mining stocks (such as GDX) is also rising.”
Goldman Sachs also mentioned that silver hedge fund bulls have also soared recently. The current term structure shows that the market is not really tight, but the amount of physical silver that sellers and bears can release is limited, and after the price falls to a certain extent, silver will also rise rapidly. Since silver is much more volatile than gold, it's no surprise that silver will significantly outperform gold over the next year.
Historically, capital inflows from US gold ETFs corresponded to the price of gold, but during the 2022 Russian-Ukrainian conflict, their relationship began to reverse — the price of gold rose sharply, but the price of gold ETFs continued to fall, and the two were clearly decoupled.
A few months later, the price of gold entered the second phase, which is closely related to hedge fund net gold management futures positions. Many central banks around the world hide gold purchase information from the outside world, yet since hedge funds can collect and trade “private” central bank information, they have become a barometer and real-time indicator for central banks' purchases of gold.
The price of gold will continue to soar
As mentioned above, gold trading volume continues to rise, and central banks around the world continue to buy gold. Central bank purchases of gold have tripled since mid-2022, and this structural trend will continue. Analyst Tyler Durden said it's no surprise that gold is hitting new highs every day.
And this is just the beginning. Another reason why the price of gold is about to take off is the Federal Reserve's recent “recalibration.” Powell began an easing cycle, cutting interest rates sharply by 50 basis points, exceeding expectations in the gold market, and prices skyrocketed as a result. Rabobank analyst Benjamin Picton said:
The price of gold hit a new high on Friday, closing far above 2,600 US dollars/ounce. The upward momentum of gold is unstoppable, and the frequency of hitting new highs is also increasing. This is not surprising, because the Federal Reserve unexpectedly cut interest rates sharply in a situation where the economy is strong, inflation exceeds the standard, and the federal government's deficit is high, starting an easing cycle.
In addition to large purchases by central banks, gold's safe-haven properties have also made it popular recently. Gold provides an important hedging value for portfolios to deal with geopolitical shocks such as tariffs, US government debt concerns, and the risk of a US recession. Gold has risen 140% since 2015.
In addition to fundamentals, there is another more pressing factor driving the price of gold higher — not only are central banks and hedge funds around the world frantically buying gold, the ETF that was the biggest driving force behind the rise in gold before the Russian-Ukrainian conflict, but now they are also joining the battle! Since ETF holdings will only gradually increase after the Federal Reserve cuts interest rates, this increase has yet to be fully priced.
As mentioned above, in the past two years, the price of gold has risen, gold ETF holdings have decreased, and they have been almost absent from the strong rebound of gold in the past two years. However, this year, ETF inflows turned positive as gold prices reached record highs.
Silver is also rising and may outperform gold in the next year
Quinn said that as gold ETFs rose, silver hedge fund bulls (which have played an important role in the price of silver in the past two years) have also soared. Quinn observed the following characteristics of the silver market:
Speculative silver futures positions surged ahead of the September Federal Reserve meeting. Goldman Sachs said that silver's managed capital and unreported net longs increased by $2.6 billion between September 17 and September 20, while prices rose 8%. This is the second largest increase in the past five years, with new bulls being the sole driver.
Among them, management capital dominates the market. From September 17 to September 20, management funds purchased 2.3 billion dollars of silver. Since the end of 2019, management funds have only bought more than $2 billion worth of silver three times.
As the supply of silver continues to be tight and the US real interest rate is low, the US dollar weakens, and the price of silver rises. Mexican metal mining company Fresnillo emphasized that demand for silver is strong due to the development of 5G, solar energy, automobiles and nanotechnology. Furthermore, the US five-year real interest rate fell by 8 basis points, and the dollar index fell 0.7%.
After the Federal Reserve cut interest rates, the price of silver continued to rise. From September 17 to September 20, silver rose 1.7%.
However, the flow of funds showed mixed results. Goldman Sachs Futures Strategist's CTA model shows a trend of increasing the market's holdings of silver. Despite this, ETF holders are still selling when they are rising, similar to their previous approach to gold, and only stopped this behavior in recent months. Furthermore, the three-month implied volatility decreased while the standardized 25 delta bearish/call option spread increased.
In other words, the current term structure shows that the market is not really tight yet. Under the above circumstances, the price of silver actually declined from December to March. This is consistent with several indicators — as of September 17, short positions by producers, processors, merchants, and users were all below average. COMEX inventory has just retreated from a one-year high. As a result, despite Fresnillo's statement that silver is in high demand, market participants are still capable of supporting more speculative long positions.
Of course, just as gold soars, there is a limit to the amount of physical silver that sellers and bears can release, and after the price falls to a certain extent, silver will also rise rapidly. ZeroEdge, a well-known financial blogger, believes that since silver is much more volatile than gold, it is not surprising that silver will significantly outperform gold in the next year.
