Goldman Sachs Research states that continued robust gold purchases by global central banks, especially that China’s actual buying volume may be far higher than officially disclosed. This trend is supporting gold prices to trend higher and underpins its target price of $4900 per ounce by the end of 2026. The bank also warns that as central bank demand, ETF capital flows and derivative hedging activities interact, gold prices may experience more pronounced two-way volatility in the period ahead.

Central Bank Purchases Remain the Core Support

Goldman Sachs analysts Lina Thomas and Daan Struyven wrote in the latest research report that their GS nowcast model estimates global central banks bought 44 tonnes of gold in July, well above the pre-2022 average of 17 tonnes per month, with China contributing a large share. On a three-month seasonally adjusted bASIs, the trend has risen to 91 tonnes per month.

Goldman Sachs says central bank demand remains a key structural factor driving gold higher. The bank expects central banks to purchase an average of 50 tonnes of gold each month in 2026 and 40 tonnes per month in 2027, continuing to exceed the historical average before 2022.

In an earlier report, Thomas and Struyven pointed out that as central banks keep diveRSIfying foreign exchange reserves and hedging geopolitical and financial risks, gold will rise to $4900 per ounce by the end of 2026. Goldman Sachs believes this trend is consistent with recent survey results showing central bank gold allocations are still in a multi-year upward cycle.

China’s Actual Purchases May Be Underestimated

Goldman Sachs Research estimates China bought 35 tonnes of gold in July, nearly double the officially disclosed figure, making it the largest buyer for the month. The bank notes official data often understates the true scale of central bank gold purchases. Its nowcast model also tracks gold flows through the London over-the-counter (OTC) market into domestic vaults or third-party custodians to capture purchases not reflected in official reserve data.

Goldman Sachs also mentioned that gold reserves held by the Bank of England on behalf of foreign central banks increased by 63 tonnes in July, a far larger rise than the decline seen at the Federal Reserve Bank of New York vaults over the same period. Based on these signs, the analysts believe additional central bank buying in the recent period has not been fully captured by the July nowcast estimate.

Rate Expectations and ETF Capital Inflows

Besides central bank demand, shifts in interest rate expectations are another important factor pushing gold prices higher recently. Goldman Sachs says as the market has scaled back expectations for Fed rate hikes in 2026, demand for gold from some investors is recovering from the slump in the first half of this year.

Thomas and Struyven wrote that Goldman Sachs economists expect inflation trends to keep edging lower, which will allow the Fed to stay on hold this year. This will further ease the “Fed-related headwinds” that previously weighed on gold prices.

Goldman Sachs’ base case forecast of $4900 per ounce also assumes a recovery in private investor ETF demand in 2026 alongside an unchanged Fed policy stance. The bank points out that if ETF inflows resume while current elevated bullish option positions peRSIst, market makers’ hedging purchases may mechanically amplify gains and push gold prices materially above its forecast.

Derivatives May Magnify Volatility

Goldman Sachs also cautions that demand for gold call options is rising, with investors using such instruments to hedge risks of sharp shifts in government policies. As gold rallies toward key strike prices of some options, dealers who sold these call options may be forced to buy gold for hedging, further lifting prices.

Conversely, if gold prices fall, dealers may also liquidate gold positions to rebalance hedges, amplifying price declines. Goldman Sachs argues this means even if its base case forecast of $4900 per ounce by end-2026 holds, gold may experience “greater two-way volatility” during the move.

The bank laid out an alternative scenario: if the market reprices Fed rate hike expectations higher, dealers may unwind hedges and gold could suffer a sharper-than-usual pullback. Under this scenario, if the Fed does raise rates, demand for gold as a macro policy hedge may partially fade, and rate-sensitive ETF holders may also become net sellers at higher interest rates. Gold could fall back to $4440 per ounce by end-2026. Goldman Sachs states this level, though materially below its base case of $4900, is still slightly above current prices because sustained central bank buying may eventually offset part of the pressure.

Geopolitical Risks Remain a Potential Upside Catalyst

Goldman Sachs also notes gold still accounts for a low share in private investment portfolios. Recent geopolitical developments — including the situation in Iran and broader tensions — may accelerate private investors’ diveRSIfication of asset allocations and further boost gold’s appeal as a safe-haven asset. The bank believes if such factors combine with sustained central bank buying, gold’s upside potential may exceed current forecasts.

Nevertheless, Goldman Sachs emphASIzes its 2026 gold target of $4900 per ounce does not incorporate heavy hedging demand via gold derivatives. Upside risks to this forecast therefore remain, but it also means gold price volatility may be larger than in previous cycles.