On Monday (the 28th), international gold prices fell to a near seven-week low, with COMEX December-delivery gold futures on the New York Mercantile Exchange dropping nearly $200 intraday and barely holding the $4,150 mark.

Surging oil prices ignited inflation concerns, reinforcing expectations that "high interest rates will persist for a long time." A strong dollar, combined with elevated U.S. Treasury yields, once again triggered massive market selling.

Since the second half of the year, multiple institutions have lowered their gold price forecasts, with monetary policy direction becoming the mainstream concern, but Goldman Sachs and Morgan Stanley remain bullish on gold hitting $5,000 next year.

Heavy Selling Pressure

After U.S. President Trump rejected Iran's peace proposal aimed at resolving the conflict and reopening the Strait of Hormuz, Brent crude oil briefly surged to $107 per barrel on Monday.

UBS analyst Giovanni Staunovo said: "Rising oil prices, combined with increased market pricing of further Federal Reserve rate hikes, are the core drivers of recent gold weakness. This macro environment may keep U.S. real yields and the dollar elevated, raising the opportunity cost of holding non-yielding gold, and precious metals volatility will further amplify in the short term."

The CME FedWatch Tool shows traders betting on a 70.3% probability of a Fed rate hike in October, which historically has reached the threshold for triggering action. The Fed already raised rates by 25 basis points earlier this month and signaled that further hikes may follow. All signs indicate the Fed is preparing for further tightening.

Last Friday, hawkish voting member and Cleveland Fed President Beth Hammack said she worries that persistent high inflation will make Americans accustomed to high prices and treat them as normal, and the Fed must not allow this to happen. Philadelphia Fed President Anna Paulson stated that more rate hikes may be needed to bring inflation back to the 2% target.

Particularly noteworthy is the stance of the Fed's third-ranking official, New York Fed President John Williams. Although he reiterated that policy decisions will be based on incoming data rather than a preset path, he believes there are reasons to expect the FOMC may need to continue raising rates this year.

This week, market focus will shift to a series of major U.S. economic data: job openings, the ADP employment report, Personal Consumption Expenditures (PCE), and the nonfarm payrolls report. At that point, it should become clearer whether the next Federal Open Market Committee (FOMC) meeting will take consecutive action.

Major Banks Cut This Year's Gold Price Targets

A compilation by this reporter found that since June, at least six major banks have lowered their 2026 gold forecasts: including Goldman Sachs, JPMorgan, Bank of America, HSBC, Morgan Stanley, and Wells Fargo. Wells Fargo has adjusted three times this year: raising to $6,100-$6,300 per ounce in February, then cutting to $4,900-$5,100 per ounce in August, a mid-point reduction of $1,200 over half a year, far exceeding the magnitude of gold price fluctuations themselves.

In addition, JPMorgan lowered its year-end gold price target from about $6,000 to $4,500. Bank of America cut its full-year average price from $5,093 to $4,360. In contrast, while Goldman Sachs and Morgan Stanley are no longer bullish on this year's outlook, their gold price targets for next year are both above $5,000.

Gold generates no interest income, and its biggest drivers are U.S. real interest rates and the dollar. Investment banks cutting gold price forecasts is not because they have found bearish factors specific to gold itself, but rather due to changes in Fed policy expectations.

Given that energy prices remain elevated, London Stock Exchange Group (LSEG) data shows U.S. money markets have begun pricing in more than three additional 25 basis point rate hikes over the next 12 months.

Over the past year, Goldman Sachs has consistently maintained a bullish view on gold. In a research report published this month, the bank stated that even if the Fed's near-term policy weighs on gold, there is still considerable upside potential. Fed rate hikes will only slow the pace of gold's rise, not completely end this gold bull market. Most of the bearish factors from this tightening cycle have already been absorbed by gold ETF fund trading.

Goldman Sachs believes that stronger-than-expected central bank gold purchases will offset the remaining downward pressure from high interest rates. Compared to short-term interest rate disruptions, the most important structural force in their forecasting framework is large-scale physical gold buying by central banks, with purchase volumes far exceeding historical norms. Currently, central banks purchase an average of about 91 tonnes of gold per month, far above the pre-2022 monthly average of 17 tonnes.

Goldman Sachs estimates that through the end of 2027, central bank gold purchases will contribute the vast majority of the full 23% expected gain in gold prices. Goldman Sachs also attributes part of gold demand to the "currency debasement trade": high-net-worth individuals and institutions are increasingly concerned that long-term high government debt and monetary policy credibility will gradually erode. Such holdings are structural positions rather than short-term tactical trades. Therefore, even if market expectations for interest rates fluctuate repeatedly, Goldman Sachs believes this type of buying will not quickly retreat.