Gold investment: Goldman says go for gold; sets a target of $3,000 by next Christmas

Gold investment: In the past two weeks, gold's shine has dulled, but it saw a slight recovery on Tuesday. Gold prices reached a one-week peak on November 19, driven by a weaker US dollar and renewed geopolitical tensions that bolstered demand for the precious metal. Spot gold increased by 0.4% to $2,623.54 per ounce by 0246 GMT, reaching its highest point since November 12. In India, gold prices also saw an uptick, with 24-carat gold priced at Rs 76,320 per 10 grams and 22-carat gold, commonly used in jewelry, at Rs 69,960 per 10 grams.

Over the past two weeks, an increase in the value of the US dollar and a rise in interest rates have caused the price of gold to become more expensive for international buyers. This has made gold less attractive when compared to other income-generating assets such as bonds. As a result, some investors have opted to sell their gold holdings to capitalize on the metal's recent strong performance, including a 15% rally in 2023 and an additional 25% increase this year. However, Goldman Sachs believes that the upward trend in gold prices is not yet complete.

Positive in 2025

Goldman Sachs analysts predict that gold prices will reach new heights in 2025 due to increasing central bank demand and anticipated US interest rate reductions. Daan Struyven and other analysts have set a target of $3,000 per ounce by December 2025. The surge in gold prices is expected to be propelled by central-bank purchases and US interest rate cuts, supported by a potential boost from exchange-traded funds (ETFs) as the Federal Reserve implements policy easing.

In a recent note, Goldman analysts highlight the ongoing support from central banks, particularly those with substantial US Treasury reserves, as they diversify their holdings to include gold.

What's working in favour of gold

Goldman Sachs believes that a potential second term for President Trump could positively impact gold prices, especially in light of increasing geopolitical tensions and concerns about US fiscal stability.

Two of the three major factors driving gold prices are holding steady. Central banks continue to accumulate gold in an effort to diversify away from the US financial system, while investors seek refuge in the metal amidst uncertainty and bet on potential rate cuts.

Although speculative traders may lose interest in gold in the future, the investment bank projects a 17% increase in gold prices by the end of 2025.

Goldman predicts that gold has the potential to outshine its current performance. In the event of escalating concerns regarding the economic policies of the US government, Goldman anticipates gold prices rising by over 20%. Furthermore, should trade tensions intensify as projected, an increase of up to 25% could be possible as more investors enter the market. This could position gold as the preferred safe haven for central banks, investors, and speculators.

Analysts suggest that an uptick in trade tensions could spark renewed interest in gold as a speculative investment. Additionally, central banks, particularly those with substantial US Treasury reserves, may opt to increase their gold holdings as a safe-haven asset.

The appeal of gold as a safe-haven investment may strengthen further if trade conflicts escalate or US fiscal challenges worsen.