Gold Price Correction Amid Dollar Strength: Central Bank Buying Provides Support

Gold Prices Temporarily Retreat Amid Dollar Pressure, But Fundamentals Remain Strong

Gold prices experienced a notable decline during Tuesday's trading session, marking their fourth consecutive day of losses. This downturn is primarily attributed to two key factors: firstly, a marked strengthening of the US dollar, making gold more expensive for investors holding other currencies. Secondly, diminished optimism regarding an imminent interest rate cut by the US Federal Reserve.

According to Edward Meir, an analyst at Marex, the stronger dollar and a reduction in speculative long positions have contributed to this correction. He suggested that the market may currently be entering a phase of consolidation.

Impact of US Economic Data and Federal Reserve Stance

The absence of official economic data due to the recent government shutdown has undermined expectations of a December rate cut. Furthermore, Federal Reserve Vice Chair Jefferson stated that the central bank needs to "proceed cautiously" regarding any further interest rate reductions, adding to the downward pressure on gold prices.

Market attention is currently focused on upcoming US economic data, most notably the September non-farm payroll report, which is expected to provide vital clues about the health of the US economy.

Structural Support for Gold: Central Banks and Geopolitical Risks

Despite the current pullback, a report from ANZ indicates that expectations for rate cuts have significantly declined, negatively impacting investor interest in gold. However, there are still strong structural factors supporting gold prices in the medium and long term, including geopolitical risks, concerns about US debt sustainability, de-dollarization trends, and central bank purchases.

Bullish Outlook from Goldman Sachs

Goldman Sachs concurs with this view, arguing that the supportive catalysts for gold will continue to provide support, and considers the current correction temporary. They emphasize that central bank purchases of gold are accelerating and will continue into next year. Goldman Sachs estimates that central bank purchases in September totaled 64 tons and are expected to continue in November. This significant increase in gold holdings by central banks is considered a long-term trend, as these banks seek to diversify their reserves and hedge against geopolitical and financial risks.

Conclusion: A Positive Outlook for Gold

Goldman Sachs forecasts that average central bank purchases will reach 80 tons per month from the fourth quarter of 2025 to 2026. Based on these forecasts, Goldman Sachs expects gold prices to reach $4,900 by the end of 2026. They add that if retail investors continue to add gold to their investment portfolios, prices could be even higher.

Goldman Sachs points out that the surge in central bank purchases, coupled with significant inflows into gold-backed exchange-traded funds (ETFs) in the West, marks the first time in this cycle that strong central bank demand has coincided with substantial growth in ETF holdings.