The primary driver in the gold market is shifting from "whether to buy" to "how volatile it is." Goldman Sachs believes that diversification demand expressed by the private sector through gold call option structures has pushed up price volatility and is temporarily dampening the pace of central bank gold purchases, although this slowdown is expected to be short-lived.

Analysts Lina Thomas and Daan Struyven noted in a report this week that rising demand for call options forces market makers who sold those options to mechanically buy gold as a hedge during price increases, thereby amplifying the rally. More critically, even a modest pullback could prompt these traders to switch from "buying the dip" to "selling the slump," potentially triggering investor stop-loss orders and leading to further losses—a dynamic observed in late January.

Against this backdrop of elevated volatility, central bank demand has slowed, with purchases totaling 22 tons in December 2025, compared to a 12-month average of 52 tons. Goldman emphasized that central banks remain willing to buy gold as a hedge against geopolitical and financial risks but prefer to resume purchasing once price volatility subsides. Thus, the slowdown appears more like "waiting for volatility to收敛" rather than a structural shift.

For investors, this implies increased near-term downside tail risks. Goldman cautioned that with option demand back at record levels, catalysts that typically cause only mild pullbacks—such as modest equity adjustments due to margin-related liquidations or a slight easing of geopolitical tensions—could now trigger larger gold price declines. The estimated downside boundary is around $4,700 per ounce.

In the medium term, however, Goldman reiterated its bullish outlook on gold, projecting a gradual rise to $5,400 per ounce by the end of 2026 under its baseline scenario.

The report linked recent gold price volatility to private-sector diversification demand, partly expressed through call option structures. Data from Bloomberg and Goldman indicated that net call open interest in GLD, the largest gold ETF, has reached record levels, serving as a key proxy for rising volatility.

Mechanically, as gold prices rise, market makers who sold call options are forced to buy gold to maintain hedges, amplifying gains. However, even a slight pullback could reverse this hedging behavior from "chasing rallies" to "selling declines," potentially triggering stop-loss orders and exacerbating losses—a pattern observed in late January.

Central bank demand has paused temporarily, with December 2025 purchases of 22 tons falling below the 12-month average of 52 tons. While Goldman previously flagged "sustained slowing in central bank demand" as a key risk to gold's outlook, it views the current slowdown as temporary. This assessment is based on three factors: dialogues with central banks, a structural shift in risk perception among reserve managers following the freezing of Russian forex reserves in 2022, and the view that gold allocations at major emerging market central banks remain below potential target levels.

Reserve managers still see gold as a hedge against geopolitical and financial risks but prefer to accelerate buying once prices stabilize.

Goldman outlined two scenarios for the "volatility–central bank demand–gold price" dynamic. Under the baseline scenario, no additional diversification demand emerges from the private sector, allowing volatility to subside. Central bank buying would then reaccelerate, maintaining a pace similar to 2025, while private investors increase allocations mainly after the Federal Reserve begins cutting rates. Gold prices would rise gradually to $5,400 per ounce by end-2026.

In an upside scenario, stronger private-sector diversification demand—driven by perceived fiscal risks in some Western economies—could further boost volatility, temporarily suppressing emerging market central bank demand. This would introduce significant upside risk to Goldman's price forecast but also prolong volatility.

Tactically, Goldman noted that GLD call option demand has rebuilt to record levels after the late-January shake-out. This increases the risk that typically mild catalysts could trigger larger-than-expected pullbacks, with a downside boundary around $4,700 per ounce. However, the late-January episode also showed that such declines may be brief, as client feedback indicated lingering "buy-the-dip" demand. Goldman thus maintains its medium-term bullish trajectory for gold and its recommendation to go long.