Recent gold price volatility may lead central banks to temporarily reduce their purchases, according to analysis from Goldman Sachs. Last month, gold prices surged to a record high above $5,500 per ounce, driven in part by investment market demand, but the largest buyers remain central banks. In recent years, central bank purchases have directly supported gold prices, but the recent sharp price fluctuations could cause a short-term slowdown in demand.

Goldman Sachs commodity analysts Lina Thomas and Daan Struyven noted in a recent report, "Discussions with market participants indicate that central bank reserve managers remain willing to buy gold as a hedge against geopolitical and financial risks. However, they prefer to delay purchases until prices stabilize." The bank attributed the increased market volatility to private-sector diversification demand, much of which is expressed through gold option structures that amplify price swings.

This volatility has made some emerging market central banks more hesitant to buy aggressively at current price levels, even though they maintain a positive outlook on the market. According to World Gold Council data, central banks purchased a net total of around 1,000 tons of gold in both 2023 and 2024. While the figure declined to approximately 900 tons in 2025, these purchases were made at higher average prices compared to the previous two years.

After briefly retreating to $4,400 per ounce earlier this month, gold prices rebounded to $5,167 as of Monday morning. Goldman analysts believe the structural backdrop remains unchanged. Since the freezing of foreign exchange reserves following the Russia-Ukraine conflict in 2022, central banks have reassessed the risks of holding U.S. dollar assets and turned to gold as an alternative.

Assuming no further surge in private-sector diversification, Goldman's base case forecast expects market volatility to moderate, allowing central bank buying to reaccelerate in line with 2025 growth levels. Combined with increased demand from private investors related to potential Federal Reserve interest rate cuts, gold prices could rise to $5,400 per ounce by the end of 2026.

However, if diversification demand accelerates further—particularly amid growing concerns over fiscal risks in Western economies—market volatility may remain elevated. This is especially likely if flows continue to be channeled through options markets. In such a scenario, near-term central bank demand could be subdued even if prices climb higher.