Gold prices have stumbled over the past four months, but Goldman Sachs believes the pullback is unlikely to mark the end of the precious metal’s rally, a view that could reignite interest in gold-backed ETFs if the investment bank’s forecast plays out.
The firm argues that both structural and cyclical drivers remain intact, even as the potential for higher interest rates has temporarily weighed on investor demand for gold and gold-backed ETFs.
Gold ETFs to watch
Should investor sentiment toward bullion improve, several physically backed gold ETFs could benefit from renewed inflows.
These ETFs typically see stronger inflows during periods of heightened economic uncertainty, geopolitical tensions, or expectations of lower real interest rates.
Central Bank Buying Remains A Powerful Tailwind
Goldman pointed to continued purchases by emerging-market central banks as the primary long-term catalyst for higher prices.
According to the bank, reserve diversification following the 2022 freezing of Russia’s foreign exchange reserves continues to reshape global demand for gold. The trend appears far from over, with a recent World Gold Council survey showing that a record 45% of the 76 central banks surveyed between February and May expect to increase their gold holdings over the next 12 months.
Those steady official-sector purchases have helped underpin bullion prices even as investor demand through ETFs has softened.
Higher rates have pressured ETF demand
The near-term challenge for gold remains the interest-rate outlook.
Gold generally becomes less attractive when Treasury yields rise because the metal does not generate income. Investors have increasingly shifted toward yield-bearing assets as markets price in the possibility that the Federal Reserve could keep interest rates elevated for longer, or even raise them further, following sticky inflation readings and a resilient labor market.
Goldman acknowledged these headwinds have weighed on ETF demand, noting that “a hawkish Fed helps fade the debasement theme.”
However, the investment bank expects those pressures to gradually ease. Its economists anticipate the Fed will hold rates steady this year before beginning an easing cycle in the second half of next year, a backdrop that could encourage investors to rebuild positions in gold-backed ETFs.
Long-Term Outlook Remains Constructive
Although gold has declined more than 6% year to date after reaching record highs in late January, Goldman believes the broader outlook remains favorable.
The bank expects concerns over Western fiscal sustainability, continued reserve diversification by central banks, and an eventual recovery in ETF demand to support prices over the medium term.
For ETF investors, that suggests the recent weakness in bullion may represent a pause rather than the end of the precious metal’s longer-term bull market, particularly if monetary policy becomes more accommodative over the next year.
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