Goldman Shares a Gold Secret

Secretive Buyer, Correlations, Price Targets and more

Housekeeping: This is an early summary of a must-read Gold report from Goldman out today. A complete write-up will be published this week. (Read the footnote please. ¹ )

Contents: (590 words)

1. They raise their target from $2700 to $2900

2. Goldman Reveals New Gold-Model Fundamentals

3. Goldman: Gold is Resetting Correlations with the West-

4. Goldman’s Secretive Buyer Discussed.

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1- They raise their target from $2700 to $2900

We raise our gold price forecast from $2,700/toz to $2,900/toz for early 2025 for two reasons. First, our economists now look for faster declines in short-term interest rates in the West and China. Second, we believe that EM/China Gold purchases from London will remain structurally elevated.

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2- Goldman Reveals New Gold-Model Fundamentals

The last few months have see many banks overhaul how they look at Gold pricing.which did not go unnoticed here. Goldman, along with several other Banks like, CITI, MUFG, GS, BOA, and UBS recently revealed a new way to model gold prices. The GS new model is better in that it is more specific and reveals the logic of their new analysis.

This forecast also relies on our rule of thumb that 100 tonnes of physical demand lifts gold prices by at least 2.4%, the lower bound of our regression estimate

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3- Goldman: Gold is Resetting Correlations with the West

In this report, they also reveal their take on if correlations with rates are broken or not. Their conclusion is a Golden reset is in progress.

While the gold-price-to-rates relationship remains intact in changes, the ‘secret’ buyer has elevated prices and reset the relationship in absolute levels

Stated another way, Goldman is saying Gold is readjusting its correlation against western rates, as GoldFix has shared with subscribers for 18 months now. For example:

From Dollar Correlations Are Not Broken

Gold hasn’t decoupled from yields and the dollar, but the beta has decreased. While a gap has opened up, this does not mean the relationship has broken down. - TS Lombard quoted

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4- Goldman’s Secretive Buyer Discussed

The Bank openly discusses increased secretive buying of Gold in London being held for an unknown buyer embedded in a walkthrough of the LBMA marekt structure.

Our estimates of China’s institutional gold purchases in the London OTC market align with the PBoC reports, but tend to be higher, start earlier, and last longer (Exhibit 4). While the PBoC reported no additional purchases after April, our nowcast estimates 50 tonnes of institutional purchases from China on the London OTC market in May,

Who is it? Although they do not conclude it, evidence points to China (ht ZH)

Premium see the whole report in PDF form here

As veterans of these markets we will see things others (even banks) do not see for a month or so every once in a while. But lets be honest with ourselves. GS did not just figure this out. and now are suddenly sharing it. They’ve known as long as or soonerthan we did. When an idea this important is shared with the regular Goldman clients…. then be ready for volatility in both directions

One more thing: This is also definitely a buy season report for retail. Released early it holds out promises of a large season of Western buying after the whole hedge fund community has gotten long. and of course it comes during an election year. We’re not speculating on this buy-season except to play long straddles. Institutional Buy season buying is happening early. Retail buy season is on schedule.. but it could be huge this year.

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