Goldman Sachs is maintaining its forecast for gold to reach $5,400 per troy ounce by the end of 2026, driven by expected Federal Reserve rate cuts, a normalization in speculative positioning, and continued central bank buying.

The bank’s analysts Lina Thomas and Daan Struyven are holding that view even as bullion has pulled back roughly 15% to around $4,580 since the onset of the Middle East conflict. They attribute the selloff to a combination of factors, chiefly the nature of the conflict itself.

The energy supply disruption triggered by the war has stoked inflation fears and led markets to price out Fed rate cuts for this year entirely. Under that scenario, Goldman estimates gold’s current fair value at around $4,550 per troy ounce, assuming pre-conflict macro policy hedges remain in place.

Record levels of call option demand earlier this year also left gold exposed. As the Wall Street bank had flagged last month, that positioning meant even a mild equity market correction could produce an outsized pullback in gold prices, pointing to $4,700 as the floor of such a move.

With the selloff now having run its course, net speculative positioning on Comex has fallen to the 39th percentile and the call option overhang has been largely unwound — leaving the market in "cleaner" shape and, in analysts’ view, at a "more attractive entry point."

The analysts pushed back on the notion that gold has failed in its role as a safe-haven or inflation hedge. Gold, they argue, behaves differently depending on the type of inflationary shock.

Supply-driven stagflation, like the current episode, historically tends to favor commodities over gold, while the metal performs best when the threat stems from institutional credibility risks, such as doubts about a central bank’s ability to contain inflation.

"Like in 2022, gold typically underperforms initially in supply disruption episodes," the analysts wrote. "Supply‑driven inflation raises the risk of tighter monetary policy, higher yields increase the opportunity cost of holding gold and weigh on ETF demand, and equity market drawdowns trigger margin‑related liquidations."

On the matter of central bank selling, Thomas and Struyven dismissed concerns that Gulf states would follow Turkey — which reportedly sold around 52 tonnes — in liquidating reserves. Gulf nations hold far smaller gold shares in their reserves and typically manage their currencies through dollar-pegged systems, making U.S. Treasury sales more likely than gold disposals.

Looking ahead, Goldman’s base case rests on three drivers: a normalization of speculative positioning, which the bank estimates is worth around $195 per troy ounce; 50 basis points of Fed cuts expected by its economists, adding roughly $120; and a re-acceleration of central bank buying to around 60 tonnes per month, contributing an estimated $535.

Downside risks remain, however. A prolonged Hormuz disruption and further equity market weakness could push gold as low as $3,800 in a severe liquidation scenario, the analysts warned.

On the flip side, if geopolitical tensions, including developments in Greenland and Venezuela, were to accelerate diversification away from Western assets, prices could climb toward $5,700 or even $6,100.

"Gold allocations in Western private portfolios remain very low," the team observed, with ETF holdings representing roughly 0.2% of U.S. private sector portfolios, leaving substantial room for upside should sentiment shift.