Goldman Sachs: Still Bullish on Gold After the Iran Sell-Off

Overview

This report analyzes the sharp decline in gold prices amid the Iran and broader Middle East conflict, and explains why Goldman Sachs still maintains a constructive medium-term view on gold. The report argues that the recent drop in gold does not mean its strategic allocation value has disappeared; rather, it reflects higher inflation risk from a supply shock, the market's repricing of the Fed path, equity pullbacks that triggered margin-related selling, and the unwinding of previously overcrowded demand for call options.

Core views

The core view is that gold may remain under tactical downside pressure in the near term, but fundamentals still support upside over the medium term. Goldman believes gold is now near or below fair value, speculative positioning has fallen to low levels, and crowded call-option positioning has already been unwound; if the Fed cuts rates by 50bp in 2026 as Goldman economists expect, and central bank buying recovers after volatility eases, gold could rise to about $5,400/toz by end-2026. The report also argues that the recent potential sale or swap of about 52 tons of gold by the Turkish central bank was not the main driver of this decline, and that Gulf states, given their relatively low gold reserve shares and continued dollar pegs, are more likely to intervene in FX via U.S. Treasuries rather than gold.

Analysis framework

The report uses a scenario-analysis and flow-based pricing framework, breaking gold prices into current price, fair value, speculative positioning, rate cuts, central bank demand, private-sector macro policy hedges, and extreme downside scenarios. It also distinguishes between two types of stagflation shocks: supply shocks tend to favor broad commodities rather than gold, while risks to institutional credibility are more likely to strengthen gold's safe-haven and store-of-value role.

Methodology notes

• Asset Allocation and Macro HedgingTwo Types of Stagflation Shock Framework

  Supply shocks and institutional credibility risk affect gold and commodities differently

  The report argues that when inflation is driven by energy or supply disruptions, rising rates and equity pullbacks may first weigh on gold, while broad commodities are more likely to hedge that kind of shock; when the market questions central bank or fiscal credibility, gold as an off-system store of value is more likely to perform well.

• Commodity PricingGold Flow-Based Pricing Framework

  Estimate gold price impact using observable fund flows

  The report uses variables such as COMEX managed-money net positioning, ETF demand, central bank gold buying, and private-sector macro policy hedges to estimate gold prices, and quantifies the incremental contributions of position normalization, rate cuts, and central bank demand to gold.

• Scenario AnalysisBase, Downside, and Upside Scenarios

  Assess the gold range under different policy and flow assumptions

  The base case is $5,400/toz by end-2026; severe downside scenarios include no rate cuts and full liquidation of macro policy hedges, which could drive prices materially lower; the upside case comes from the private sector rebuilding macro policy hedges and accelerating diversification.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• gold

  core research asset

  Strengths

  Central bank demand, private-sector diversification, macro policy hedges, and potential rate cuts all support medium-term prices.

  Weaknesses

  Near-term pressure comes from rising rates, weaker ETF demand, margin selling driven by equity corrections, and supply-shock inflation.

  Comparison

  Compared with broad commodities, gold is better for hedging institutional credibility risk; compared with equities and bonds, gold can provide portfolio diversification in certain inflation and policy-credibility scenarios.

  Risks

  Persistent disruptions in the Strait of Hormuz, no rate-cut expectations, cooling central bank demand, and a full unwind of private-sector macro policy hedges.

• commodities

  hedge asset for supply-shock inflation

  Strengths

  In stagflation driven by energy or supply disruptions, the affected input goods themselves often generate positive real returns.

  Weaknesses

  They do not necessarily hedge institutional credibility risk, and prices are heavily affected by the supply-demand cycle and the path of energy shocks.

  Comparison

  The report argues that supply-shock stagflation is more favorable for commodities, while credibility-risk stagflation is more favorable for gold.

  Risks

  Easing shocks, weakening demand, or policy responses that are stronger than expected could undermine commodity performance.

• US Treasuries

  FX reserve management and rate-path reference asset

  Strengths

  Gulf dollar-pegged economies are more likely to intervene in FX via U.S. Treasuries rather than gold.

  Weaknesses

  If inflation and fiscal concerns rise, bonds may deliver negative real returns alongside equities.

  Comparison

  When equities and bonds both fail to diversify risk, gold or commodities may become alternative hedging assets.

  Risks

  Rising rates, fiscal sustainability concerns, and inflation shocks.

• US equities

  a transmission variable for gold sell-offs

  Strengths

  A recovery in risk appetite can reduce margin-related liquidation pressure on gold.

  Weaknesses

  Equity pullbacks can trigger passive or margin-related gold selling, especially when gold longs were previously crowded.

  Comparison

  The report discusses gold or commodities as hedges when both stocks and bonds produce negative real returns.

  Risks

  A deeper correction caused by escalating Middle East conflict, energy price shocks, and earnings growth concerns.

Key data

• Recent gold declineabout -15% to around $4,580/tozPrice performance since the start of the Middle East conflict.
• Current fair value estimateabout $4,550/tozBased on a hypothetical Fed path with no rate cuts and assuming macro policy hedges remained relatively stable before January.
• End-2026 base forecast$5,400/tozGoldman's maintained base-case target for gold.
• Speculative positioning normalization contributionabout +$195/tozCOMEX net speculative positioning has fallen to roughly the 39th percentile; normalization could provide incremental support.
• Fed rate-cut contributionabout +$120/tozBased on Goldman U.S. economists' expectation of two rate cuts in 2026, totaling 50bp.
• Central bank demand contributionabout +$535/tozThe base case assumes central bank buying recovers to about 60 tons per month, above the 12-month moving average of 52 tons per month.
• Turkish central bank related gold sales or swapsabout 52 tonsThe report argues that this scale is not sufficient to be the main direct driver of the current sell-off.
• Gold share of reserves in Gulf countriesUAE about 4%, Saudi Arabia about 10%, Oman about 5%, Qatar about 30%All are below Turkey's gold share of more than 60% of foreign reserves, so the report believes Gulf central banks are unlikely to be forced sellers of gold.
• Severe downside scenario referencedown to about $3,800/toz; another adverse scenario at about $4,335/toz by Dec26Depends on no rate cuts, full liquidation of macro policy hedges, and assumptions in the observable flow model.
• Upside scenario referenceabout $5,700/toz to $6,100/tozIf macro policy hedges are rebuilt to pre-selloff levels, prices could rise by about $750/toz; if the prior upward trend continues, another about $425/toz could be added.

Impact & implications

For portfolios, the report suggests that gold's short-term safe-haven performance may not match investor intuition: in an inflation environment dominated by energy supply shocks, rising rates and volatility in risk assets may weigh on gold, while broad commodities may benefit more directly; but in a longer-term environment of fiscal sustainability concerns, policy credibility risk, and heightened geopolitical fragmentation, gold still offers strategic diversification value. For gold bulls, the post-sell-off positioning structure is healthier, but entries still need to monitor whether disruptions in the Strait of Hormuz, equity corrections, and central bank demand recover.

Risks

• In the short term, if disruptions in the Strait of Hormuz persist and lead to a larger equity-market correction, gold could again face liquidation pressure.
• The market may continue to interpret the energy shock as inflation risk and reprice a more hawkish Fed path, raising the opportunity cost of holding gold.
• If the private sector fully unwinds the remaining macro policy hedges, gold could overshoot to the downside.
• If central bank buying does not recover after volatility falls, the medium-term bullish case will weaken.
• Although Turkish or other central bank gold sales are not the main driver right now, a shift into persistent net central bank selling would pose a structural risk.

What to watch

• Whether expectations for Fed rate cuts shift back from no cuts to 50bp of cuts in 2026.
• Whether COMEX net speculative positioning recovers from around the 39th percentile back to normal levels.
• Whether gold ETF demand and the open-interest balance between GLD call and put options rebuild.
• The nowcast for central bank gold demand, especially whether monthly buying recovers to around 60 tons per month after volatility declines.
• Whether disruptions in the Strait of Hormuz and Middle East energy supply persist or escalate.
• Whether Gulf countries show signs of selling gold in foreign reserve management.
• Whether the private sector accelerates its shift from traditional Western assets toward gold and other alternative stores of value.