Goldman Sachs Research anticipates that ongoing central bank reserve diversification will continue to provide structural support for gold, projecting the precious metal to reach $4,900 per ounce by the end of 2026. Analysts Lina Thomas and Daan Struyven at Goldman Sachs Research expect gold to sustain its recent upward momentum through the second half of 2026, even as the rising usage of certain gold-linked derivatives could heighten price volatility.

Central Bank Gold Purchases Gaining Momentum

Goldman Sachs regards central bank demand as a crucial pillar for gold's long-term appreciation. The institution asserts that central banks' accumulation of gold is not a short-term phenomenon but rather a multi-year restructuring of their reserve portfolios. Thomas and Struyven point out that they continue to view the elevated level of central bank gold accumulation as a years-long trend, consistent with recent survey evidence showing central banks are diversifying reserves to hedge against geopolitical and financial risks.

Goldman Sachs projects that global central banks will purchase an average of 50 tonnes of gold per month in 2026, significantly higher than the pre-2022 average of 17 tonnes per month. The firm's real-time central bank activity forecasting model indicates that after three-month seasonal adjustment, sovereign gold purchases accelerated further to a monthly average of 100 tonnes in June 2026, up from 66 tonnes the previous month.

Rate Cut Expectations Easing Pressure on Gold

Federal Reserve policy expectations are also contributing to the recent revival in gold demand. Goldman Sachs notes that as the market lowers its expectations for Fed rate hikes in 2026, some previously subdued investor demand for gold is recovering. The analysts wrote that they expect Fed-related headwinds to diminish further, as their economists believe moderating inflation trends will prompt the Fed to hold rates steady this year.

Goldman Sachs also believes that private investors' gold allocation remains relatively low, suggesting that the potential demand for gold allocation has not yet been fully unleashed. Thomas and Struyven indicate that gold's share in private investment portfolios is still modest, while recent geopolitical developments—including tensions involving Iran and broader regional instability—could accelerate the diversification trend extending from central banks to private investors, partly because these factors pressure expectations of Western fiscal sustainability.

This implies that if geopolitical risks continue to drive private investors to adjust their asset allocations, gold demand could expand further, adding upside potential beyond Goldman Sachs' current $4,900 per ounce year-end 2026 target.

Gold Options May Amplify Both Upside and Downside Moves

Another evolving dynamic in the gold market stems from derivatives. Goldman Sachs points out that investor demand for gold call options is increasing, partly due to the desire to hedge against the risks that major government policy shifts pose to portfolios. The hedging mechanisms in the options market could further amplify gold price movements.

When gold prices rise persistently and approach key strike prices on certain call options, market makers who sold these options may need to purchase gold to hedge their short exposure. Goldman Sachs notes that as gold prices advance toward critical call option strike prices, option sellers are compelled to buy gold to hedge their short positions, thereby accelerating the rally.

The same mechanism could also function during downturns. The report states that on the flip side, falling gold prices could prompt market makers to reverse positions by selling their gold holdings, pushing prices even lower.

Thus, derivative demand does not simply provide additional buying power for gold—it may also act as an amplifier: hedging purchases during upswings can strengthen rallies, while hedging sales during downswings can further depress prices.

Goldman Sachs' current $4,900 per ounce target does not incorporate this robust gold derivative hedging demand. The institution believes this factor raises the upside risk of gold exceeding its target, but simultaneously implies that the gold market will face "greater two-way volatility" moving forward.