Source: Wall Street News
Author: Ye Zhen

Will a strong dollar put pressure on gold? Goldman Sachs disagreed.

Goldman Sachs analysts Lina Thomas and Daan Struyven in their December 10 report refuted the view that gold will not reach $3,000 per ounce in 2025 under the long-term strength of the US dollar.

Goldman Sachs believes, first, that the US policy interest rate is the main factor affecting the demand for gold investment, not the US dollar. Goldman Sachs expects the Federal Reserve to cut interest rates by 125 basis points by the end of next year to boost gold's rise by 7%. If the Federal Reserve only cuts interest rates one more time, the price of gold is expected to reach only $2,890 per ounce.

Second, Goldman Sachs expects that a strong dollar will not prevent the central bank from buying gold. Central banks tend to use dollar reserves to buy gold. Even if the dollar appreciates, major buyers such as China may increase gold purchases when the currency is weak to enhance monetary confidence.

Goldman Sachs has observed that during the period of the weakening of the RMB, including 2014-2016, 2018-2020, and since 2022, the central bank of China has been systematically buying gold in the London OTC market. Goldman Sachs expects central bank purchases to increase the price of gold by 9% by the end of 2025.

Furthermore, Goldman Sachs believes that when uncertainty increases, the price of gold, which is also used as a safe-haven tool, will often rise along with the US dollar. The report also pointed out that the impact of the devaluation of the RMB and the broader easing policy on retail gold demand in China is largely neutral, as the rise in Chinese interest rates on gold demand has largely offset the negative impact of rising local gold prices.

Goldman Sachs is optimistic about gold even if the dollar strengthens for a long time

Goldman Sachs pointed out that the reason for the strength of the US dollar is critical to the price of gold. Gold prices tend to weaken when strong US growth or rising US interest rates drive the dollar stronger. However, when trade tariffs or broader geopolitical shocks drive the dollar's strength, the dollar and gold prices tend to rise together.

Goldman Sachs economists and foreign exchange strategists expect that in a global easing cycle where most other central banks are likely to cut interest rates even more drastically, the US dollar will also strengthen. After counting the impact of interest rates and exchange rates on gold, Goldman Sachs found that US policy interest rates almost completely drive investors' demand for gold ETFs, and the US dollar has no significant additional statistical effect.

Goldman Sachs expects that under the basic circumstances, the Fed will cut interest rates by an additional 125 basis points by the end of next year; if the Fed cuts interest rates by an additional 25 basis points (which may also strengthen the dollar), it is estimated that the price of gold will only rise to $2,890 per ounce by the end of 2025; if the US falls into recession (although the probability is as low as 15%), the Fed will gradually cut interest rates to $3,080 per ounce by the end of 2025.

Even if the dollar is strong, central banks around the world will still buy

Goldman Sachs disagreed with the view that a strong dollar would prevent central banks from buying gold from their dollar reserves because central banks bought gold from US dollar reserves. Goldman Sachs expects central bank purchases to increase the price of gold by 9% by the end of 2025.

Goldman Sachs pointed out that although the appreciation of the dollar may put pressure on some emerging market central banks with limited dollar reserves (for example, in Latin America) to prioritize and support the use of domestic currencies in foreign exchange intervention rather than buying gold, these countries are not the main drivers of global central banks' demand for gold.

However, major buyers like China have large US dollar reserves and long-term strategic diversification interests, and may even increase demand for gold during a period when the currency is weak to enhance confidence in the local currency.

Goldman Sachs has observed that China, as the biggest buyer of gold since 2022, has been systematically buying gold in the London OTC market during the period of the weakening of the RMB, including 2014-2016, 2018-2020, and since 2022. According to the latest foreign reserve data, after a six-month suspension, the central bank of China bought gold again in November.

Gold and the US dollar often rise together when safe-haven demand rises

Goldman Sachs said that gold and the US dollar often rise together when market uncertainty increases because investors seek safe assets. Geopolitical events, such as changes in tariffs, often push up the value of gold and the dollar at the same time.

For example, the expected increase in US tariff revenue of 10 billion dollars in 2019 caused gold and the dollar to rise 0.4% and 0.3%, respectively. Meanwhile, the new finance minister announced on November 22, 2025 reduced the risk of expected tariff escalation in the market, causing gold and the US dollar to fall by 2.2% and 0.5%, respectively.

Furthermore, Goldman Sachs pointed out that when financial uncertainty increases, gold and the US dollar also tend to rise as safe haven assets, which can be measured by the rise in the VIX Index. However, in the case of extreme liquidity constraints, such as margin sales, the price of gold may drop.

Edit/Jeffy