①Goldman Sachs pointed out that the rise in gold prices is part of a broader shift in how governments and investors approach commodities, with central bank purchases aimed at hedging risks driving the surge in gold prices; ②Analysts noted that the annual new supply of gold remains relatively stable and reacts slowly to price changes. This means that demand driven by risk concerns can sustainably push gold prices higher over a longer period.
Goldman Sachs believes that the historic rise in gold prices is not just a solo performance by precious metals; rather, it reflects a broader shift in how governments and investors approach commodities.
Recently, purchases by central banks have driven gold prices higher as governments seek to hedge against geopolitical and financial risks.
Goldman Sachs analysts wrote in the report that a strategy akin to 'insurance-type' approaches is beginning to emerge in other commodity markets.
“As certain risk management policies are gradually implemented, some commodity markets are shifting from a single global supply-demand balance to a more regionally fragmented system, increasing the risk of heightened price volatility.”
Goldman Sachs analysts stated that following the supply chain disruptions in 2020 and the food and energy crises in 2022, policymakers have placed greater emphasis on ensuring secure access to critical materials.
These measures include imposing tariffs, implementing export controls, supporting domestic production, and establishing government strategic reserves. Collectively, these actions are reshaping the structure of commodity markets, making prices more sensitive to shocks.
Goldman Sachs used copper as an example to illustrate this trend. Although the market originally anticipated a global copper surplus by 2025, the United States’ intensified stockpiling has withdrawn part of the supply from the international market, tightening markets outside the U.S., where global benchmark prices are primarily formed.
This phenomenon is not limited to the governmental level. Analysts wrote, “Recent client feedback indicates that ‘insurance-type’ demand for various commodities—not only gold but also industrial metals like copper—has expanded from the public sector to the corporate sector, as private-sector investors are turning to physical assets for diversification amid an uncertain global policy environment.”
These capital inflows are supporting metal prices and amplifying market volatility. For most commodities, when prices rise, supply can adjust accordingly. Producers tend to increase output, thereby alleviating the price spikes driven by ‘insurance-type’ demand.
However, policies aimed at enhancing supply security may also lead to overproduction, which could depress prices, squeeze out small producers, and further concentrate supply, thereby increasing the risk of future disruptions and significant price volatility.
Nevertheless, gold remains structurally distinct. Analysts at Goldman Sachs pointed out that nearly all the gold ever mined still exists above ground, while annual new supply is relatively stable and responds slowly to price changes.
This means that demand driven by risk concerns can continue to push gold prices higher over a longer period.
Editor/Stephen
