Goldman: Gold's Pullback to $4,000 Is a Buy Zone Before FOMC

The structural bull thesis for gold remains untouched in Goldman Sachs' view despite the steep slide from the January record. Any pullback toward $4,000 an ounce is viewed as an entry point, not an indication that the rally has ended. When it comes to positioning, the bank's preferred tactic is to build long exposure on any dips as the September FOMC approaches. The upcoming CPI release — which Goldman economists say is critical — is considered the dominant near-term catalyst for how the market prices the Federal Reserve's reaction function.

The buying by central banks, which Goldman estimates is proceeding at about twice the rate seen before 2022, is the flow that is most resistant to reversal, even if retail and ETF interest remain weak. Silver, on the other hand, is described as the higher-beta, more retail-focused trade, with a much broader spectrum of possible outcomes.

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The message from Goldman about gold is straightforward: the current weakness is a breather driven by Fed uncertainty and interruptions in reserve flows, rather than the peak.

Summary:

• Tony Kim, the head of global metals trading at Goldman Sachs, shared these views on the bank's markets podcast last week.
• Gold is roughly 20% below its January high even after a strong August, a condition Kim describes as a prolonged pause rather than a cyclical peak.
• The pause is being driven by two forces: the uncertainty around the policy stance of incoming Fed chair Warsh, and the way the US-Iran conflict has upended energy, agriculture and metals markets.
• Each year, central banks are now buying an estimated 1,000 to 1,100 tonnes of gold, about twice the 400 to 500 tonnes they purchased before the Russia-Ukraine conflict, out of roughly 3,500 tonnes of annual mine output.
• In Asia, physical gold demand has been hit by the Iran conflict, as countries such as India put currency defence for energy security ahead of adding to their gold holdings.
• Goldman sees $4,000 per ounce as a firm base for building long positions, with next week's CPI release the main catalyst before the September FOMC.

According to Tony Kim, Goldman Sachs' global head of metals trading in fixed income, currencies and commodities, the bank is advising clients that the drop from January's all-time highs represents a breather in the bull run, not the end. Kim noted that gold is still about 20% under its January top despite a robust August, and insisted the fundamental forces behind the climb remain.

Kim attributed the current pause to two overlapping influences. First, there is the uncertainty over Kevin Warsh, the incoming Federal Reserve chair, and how his policy reaction function will develop amid public statements on Fed policy from the Trump administration. Second, there is the impact of the US-Iran conflict, which has roiled energy, agriculture and metals markets, affecting both inflation expectations and the accumulation of reserves that typically flows into precious metals. Many clients across Goldman's franchise have trimmed their positioning in response, while central bank purchases have stayed firm as the one steady flow.

Kim said that central bank demand is carrying much of the structural weight. The world's mines produce about 3,500 tonnes of gold annually. Before Russian reserves were frozen after the Russia-Ukraine conflict, central banks were buying 400 to 500 tonnes each year; they are now taking in roughly 1,000 to 1,100 tonnes annually. That reduces the amount of gold left for jewellery, ETFs and physical investment, so a smaller influx of investment capital is required to push prices significantly higher.

Asian demand, long a key pillar for jewellery and central bank purchases alike, has been the soft spot this year. Kim said the Iran conflict has disrupted how the region generates reserves, while nations such as India have focused on defending their currencies to guarantee energy supply rather than on adding gold, and certain domestic measures have actively curtailed gold buying. A lasting revival of that demand, he argued, would likely require a more sustained normalisation of Middle East energy markets.

Kim was more guarded about silver, pointing out that investment demand accounts for only about a fifth of the silver market's total demand, with industry taking a larger share. That means the metal's clearing price could reasonably end up anywhere from $50 to $100 an ounce, depending on how retail, physical and investment flows come together. He also observed that central banks are not building silver stockpiles in the way they are building gold holdings, which makes silver a higher-beta, more retail-driven wager rather than the core fundamental trade.

Goldman retains a bullish institutional stance on gold, and Kim pointed to $4,000 an ounce as a price where sovereign and institutional buyers offer strong backing. He advised clients to take advantage of the volatility surrounding upcoming data — including the CPI release this week — to add to long positions before the Federal Reserve's September meeting.