Goldman Sachs: If Middle East conflicts escalate and deepen Western financial concerns, gold will surge past $6,100!

Ask AI · Why is gold price falling against the trend amid Middle East conflicts?

Since the outbreak of the Middle East conflict, gold prices have fallen cumulatively by about 15%. Goldman Sachs maintains a bullish stance. Its base forecast is that gold prices will reach $5,400 per ounce by the end of 2026, and it believes that if geopolitical tensions worsen further and Western fiscal sustainability is impacted, gold prices will be pressured toward $6,100.

According to the Chasing Wind Trading Platform, analysts Lina Thomas and Daan Struyven from Goldman Sachs’ commodities research team said in a report released on March 30 that the root of this downturn lies in high oil prices boosting inflation expectations. The market has re-priced the Federal Reserve’s rate path to no rate cuts for the rest of the year, and this is compounded by forced liquidation of earlier bullish options positions, which magnifies the decline.

The decline is mainly due to technical factors and short-term macro factors, and it does not shake the medium-term view. The base forecast is built on three pillars: continued central bank gold purchases, the normalization of speculative positioning, and the Fed completing 50 basis points of rate cuts within the year.

If stock markets continue to undergo large-scale corrections, or if investors are disappointed with gold’s performance and choose to clear out, gold prices may fall to $3,800. Meanwhile, if geopolitical shocks accelerate diversification of private-sector assets and erode Western fiscal credibility, gold could potentially rise to $6,100.

Why gold has not served as a hedge against conflict

This round of gold-price weakness does not mean that gold has lost its hedging function; rather, it reflects a normal market reaction to the nature of the inflation shock.

Gold’s performance differs across two types of stagflation scenarios.

The first is a scenario in which institutional credibility is damaged—when markets question the central bank’s willingness or ability to rein in inflation. In a combination like the U.S. fiscal expansion and Federal Reserve policy missteps of the 1970s, gold often rises sharply.

The second is stagflation driven by supply conflicts—when energy-supply disruptions suppress growth while pushing up prices, historically gold usually underperforms in the early stage of such situations.

The current Middle East conflict is closer to the latter. The upside inflation risk from energy-supply shocks triggers the market’s pricing of tighter monetary policy, pushing up real interest rates and suppressing demand for gold ETFs. Adjustments in the stock market further trigger margin calls, leading to the liquidation of gold positions.

At present, the market’s pricing of the rate path is already excessive, and compared with growth drag, it is overemphasizing the upside rise in inflation.

Three pillars support the $5,400 base forecast

The report maintains its base forecast that gold will reach $5,400 per ounce by the end of 2026, and it lays out three key drivers.

First, speculative positions have been largely cleared out, and valuation attractiveness has returned. Comex net speculative long positioning has fallen to the 39th percentile in history. The bullish options positions accumulated since January have essentially been closed out. The market is currently pricing in a more hawkish monetary-policy shock than what historical experience suggests.

Historical patterns show that negative oil-supply shocks tend to bring slightly higher policy interest rates in the initial 1 to 3 months, but after 6 to 9 months, growth concerns dominate, and interest rates then move lower. The normalization of speculative positioning itself is expected to contribute about $195 per ounce to the gold price.

Second, expectations of Fed rate cuts provide price support. The Fed is expected to implement two rate cuts in 2026, totaling 50 basis points. Estimates suggest this would add about $120 per ounce to gold prices.

Third, central bank gold-buying demand provides the medium-term anchor. Under the baseline assumption of no additional private-sector diversification, once gold-price volatility declines, central banks are expected to resume accelerating gold purchases, with average monthly buying of about 60 tons—higher than the average of 52 tons over the past 12 months. This pace of gold buying is expected to contribute about $535 per ounce to gold prices.

Near-term downside risks: Extreme scenarios could touch $3,800

Even though positions have been largely cleared out, near-term downside risks cannot be ignored.

If the disruption in the Strait of Hormuz lasts longer than its energy team expects, and triggers a larger correction in the stock market, gold will face fresh selling pressure.

Some investors previously treated gold as a hedge against stagflation. If they are disappointed by its performance, they may choose to completely liquidate their remaining “macro policy hedge” positions, which could lead to a deeper-than-necessary drop in gold prices.

In this extreme scenario, estimated gold prices could fall to $3,800 per ounce—viewed as the downside boundary of liquidity liquidation risk.

Upside scenario: If geopolitical shocks drive asset diversification, gold could rise to $6,100

The medium-term upside risk is “significant and asymmetric.” If the Iran-related event accelerates the private sector’s shift away from Western traditional assets through diversification, while the Middle East conflict raises market concerns about Western long-term defense spending and fiscal sustainability, gold’s upside potential would be considerable.

If macro policy hedge positions are rebuilt back to their pre-selling levels, it would add about $750 per ounce to the gold price, pushing it to around $5,700. If the upward move continues along the trend accumulated earlier, it would add another approximately $425 per ounce, bringing the gold price toward $6,100.

Over the long term, upside risk for gold prices has a nonlinear character. Currently, the share of gold in Western private investment portfolios is extremely low—within the U.S. private-sector portfolio, ETF gold holdings account for only about 0.2%.

It is estimated that for every 1 basis point increase in the U.S. private sector’s allocation to gold, gold prices would rise by about 1.5%. This elasticity coefficient reveals a substantial nonlinear effect on potential upside.