Goldman Sachs, the global investment bank, announced a surprise adjustment to its gold price forecasts in 2025. After the bank had previously expected gold prices to reach $3,000 per ounce by the end of 2025, it decided to adjust this forecast and postpone its estimate to mid-2026. This sudden adjustment came as a result of new expectations regarding the US Federal Reserve’s monetary policy, which will significantly affect the movement of XAU prices in the near future.
Slowdown in monetary easing and its impact on the gold market
The slowdown in the pace of monetary easing in 2025 is expected to reduce demand for gold-backed exchange-traded funds. This change prompted analysts, such as Lena Thomas and Dan Struyven of Goldman Sachs, to adjust their estimates. They now expect XAU to reach $2,910 per ounce by the end of 2025, instead of $3,000 as previously expected.
Flows into gold-backed exchange-traded funds (ETFs) fell significantly in December 2024. The decline in flows was due to reduced uncertainty following the US elections, which led to XAU prices starting from lower levels than expected at beginning of the year.
Factors affecting the price of gold
Analysts indicated that there are conflicting factors affecting the price of gold at the present time. On the one hand, they note decline in demand for XAU for speculative purposes, which temporarily limits prices. On the other hand, there is a significant increase in gold purchases by central banks around the world, which boosts demand for the yellow metal.
One of the most prominent factors affecting the price of gold is the monetary policy followed by central banks, especially US Federal Reserve. As interest rates rise, XAU becomes less attractive as an investment, as investing in government bonds or other financial instruments that offer higher returns becomes more attractive.
Central Banks Buy Gold
Central bank gold purchases remain the key factor that will drive price action in the long term. Analysts expect average monthly XAU purchases to reach around 38 tonnes by mid-2026. This is one of the key factors that will drive prices higher in the long term.
Last year, gold saw a remarkable 27% rise, reflecting its success in overcoming economic challenges. The US Federal Reserve’s monetary easing has supported this rise, along with increased demand for XAU as a safe haven in times of uncertainty. Central bank XAU purchases around the world have also been a factor in pushing prices to their highest levels.
Political influences on the XAU market
In early November 2024, the gold rally came to a halt due to Donald Trump’s victory in the US elections. This event helped boost the value of the US dollar, which negatively affected the price of XAU. This caused a significant decline in the price of the yellow metal in the period following the elections.
Recently, gold has faced further pressure from signals from US Federal Reserve officials that they need to adopt a more cautious approach to interest rate cuts this year. These signals come at a time when markets are witnessing renewed concerns about inflation and an uncertain economic outlook. As a result, gold is facing challenges from the US monetary policy.
Forward Monetary Policy Outlook
Based on the new forecasts, Goldman Sachs economists now expect US interest rates to be cut by 75 basis points in 2025. This estimate is a decrease from the previous forecast of a 100 basis point cut. This forecast suggests that monetary policy will be less tight than expected, which will lead to a slowdown in core inflation in the US.
The Impact of Lower Interest Rates on Gold Markets
Lower interest rates are known to support gold prices, making the yellow metal more attractive as a safe haven for investors. However, in light of the new expectations that reduce the number of expected rate cuts, this may temporarily reduce demand for gold. This adjustment in interest policy puts pressure on future price expectations.
In contrast, analysts view higher interest rates as a negative factor for the price of gold because they increase government bond yields and reduce gold’s attractiveness by comparison. However, the modest decline in interest rates expected by Goldman Sachs in 2025 may contribute to supporting XAU to a limited extent.
Geopolitical factors and their impact on gold
Along with monetary policy, geopolitical factors play an important role in determining the direction of gold prices. With tensions rising in some areas around the world, gold remains a safe haven that investors resort to. In 2024, geopolitical concerns contributed to pushing XAU prices to high levels, but with some of these concerns easing, the yellow metal may see some pressure in the near future. The Near Future of XAU in 2025
All indicators suggest that XAU prices in 2025 may witness some fluctuations, but they will remain under the influence of multiple economic and geopolitical factors. Thanks to the continued monetary easing policy from some central banks, there will still be demand for XAU as a hedge against inflation. However, in light of expectations that the Federal Reserve will ease its interest rate cut policy, gold may witness some slight price declines.
Goldman Sachs has surprisingly revised its gold price forecast for 2025, shifting from a significant increase to a more conservative projection. The bank expects XAU prices to reach around $2,910 per ounce by the end of next year. With the decline in monetary easing.
