Even as the Federal Reserve has just raised interest rates, with Goldman Sachs economists anticipating another hike in October, the bank's global commodities research team remains steadfast in its $5,400 per ounce gold price target for end-2027.

According to information from a trading desk monitor, Goldman Sachs conveyed a clear signal in its latest precious metals research report dated September 18: tightening policy will only slow the pace of gold's short-term ascent, not derail its long-term bull trend. The pressure from near-term rate hikes has been largely priced in by the market, leaving room for further upside in gold.

The report states that the current structural central bank gold buying spree, coupled with demand for call options driven by concerns over G10 fiscal sustainability, is forging an extremely solid floor beneath gold prices.

Goldman Sachs projects gold's fair value to reach $4,650 per ounce by the end of this year, notably higher than the current spot price of around $4,350. Additionally, investors are urged to stay alert to risks of mechanical surges, or short squeezes, from options market dealers' hedging activities, as well as speculative volatility around the U.S. midterm elections.

Rate Hike Impact Limited: Slower Near-Term Path, Unchanged Terminal Target

Goldman Sachs explicitly noted in the report that despite the Fed's first rate hike in three years and its economists' projection of an additional hike in October, the terminal gold price target of $5,400 per ounce for end-2027 remains unchanged.

The bank's rationale is that monetary policy tightening will primarily manifest as a slowdown in gold's near-term appreciation path, rather than a shift lower in the terminal price. Goldman Sachs economists forecast three rate cuts between September 2027 and March 2028, with the terminal rate forecast held steady at 3.25%-3.5%.

Accordingly, Goldman Sachs has trimmed its end-2026 gold fair value estimate to $4,650 per ounce from a prior $4,900, though this still sits well above the current spot price of approximately $4,350. The report also points out that the anticipated monetary tightening has been largely absorbed by ETF demand, meaning the marginal downward pressure from rising rates on gold prices is weakening.

Central Bank Buying: The Core Structural Driver of the Gold Bull Market

Goldman Sachs characterizes ongoing central bank gold purchases as the primary structural driver of the bullish gold thesis, contributing the lion's share of the expected roughly 23% gain through end-2027.

The bank's Nowcast model for tracking central bank buying in real time indicates a current pace of about 91 tonnes per month, based on a seasonally adjusted three-month average, more than five times the historical average of 17 tonnes per month seen before 2022.

Given this acceleration trend, Goldman Sachs has raised its central bank demand assumptions: the prior forecast was 50 tonnes per month in 2026 and 40 tonnes in 2027, while the updated projection sees an average of 60 tonnes per month across 2026-2027.

Goldman Sachs believes the diversification drive among global central banks, triggered by the 2022 freezing of Russian central bank assets, represents a structural rather than cyclical shift. Recent communications with several central banks have also confirmed their persistently strong demand for gold.

Robust Call Option Demand Provides Additional Support

The report highlights notable dynamics in the gold call options market. Open interest in gold call options currently stands at roughly three times the historical average, and this positioning has shown remarkable resilience following the Fed's rate hike and relatively hawkish press conference.

Goldman Sachs interprets this as evidence that concerns over G10 fiscal sustainability continue to underpin demand for gold as a macro policy hedge.

It is worth noting that Goldman's $5,400 target assumes call option positioning remains broadly stable, with net call open interest in GLD at approximately 2.3 million contracts. The bank has not incorporated additional price amplification effects from further increases in call option positions into its base case forecast.

Goldman calculates that at current positioning of around 2.3 million contracts, every additional 100 tonnes of conviction demand would boost gold prices by approximately 6.8%, compared to just about 2% under normal positioning conditions. This suggests that dealer hedging behavior could mechanically amplify gold's gains, potentially pushing prices significantly above the bank's base case.

Tail Risk Warnings: Extreme Hawkish Path and Pre-Election 'Waiting Room' Effect

Goldman Sachs explicitly outlined two scenarios that could trigger pullbacks in gold prices.

On the downside, in an extreme hawkish scenario where the Fed unexpectedly delivers three additional rate hikes by year-end and signals a higher terminal rate, market doubts about developed-market central bank independence could fade, prompting partial unwinding of macro hedge demand. Combined with net selling by rate-sensitive ETF holders, gold could temporarily dip to a floor near $4,070 per ounce. However, thanks to ongoing central bank buying that continuously raises the price floor, gold should gradually recover to around $4,200 per ounce by end-2026.

On event-driven volatility, the so-called waiting room effect ahead of the U.S. midterm elections, speculative capital tends to park in gold as a safe haven before major events with uncertain outcomes. Goldman notes that speculative positioning ahead of the U.S. midterms could temporarily lift gold prices by roughly 5%, assuming net managed fund holdings rise by about 250 tonnes from current levels to 685 tonnes, the 90th percentile since 2014. However, once election results are confirmed and capital is redeployed, gold could witness sharp selling pressure, a pattern observed after the 2016 Brexit vote and the 2024 U.S. presidential election.