Gold Price Rally Sidelined Central Banks but They Are Eyeing Comeback

Gold’s historic rally sidelined one of its biggest buyers — but they’re eyeing a comeback, according to Goldman Sachs.

The precious metal has been on a red-hot run over the past year, hitting a record high above $5,500 per ounce late last month before a sharp correction.

While gold’s rise has been buoyed by central bank buying in recent years, sharp price swings have temporarily slowed that demand.

“Our conversations suggest that reserve managers remain willing buyers of gold to hedge geopolitical and financial risks but prefer to delay purchases until prices stabilize,” Goldman commodity analysts Lina Thomas and Daan Struyven wrote in a note on Thursday.

The elevated volatility was driven by private-sector diversification demand — much of it expressed through gold call-option structures that amplify price moves.

That volatility has made some emerging-market central banks more hesitant to step in aggressively at current levels, even as they remain structurally bullish.

Central banks bought roughly 1,000 metric tons of gold on a net basis in 2023 and 2024, according to the World Gold Council. That dipped to around 900 tons in 2025, but they bought at higher prices compared to the past two years.

Spot gold was trading around $4,995 per troy ounce in early Friday trade. Prices are up about 16% so far this year.

Volatility masks steady demand

The structural backdrop, Goldman’s analysts argued, hasn’t changed. Since the freezing of Russia’s reserves over its full-scale invasion of Ukraine in 2022, central banks have reassessed the risks of holding dollar assets and started buying gold as an alternative.

In its base case — which assumes no additional surge in private-sector diversification — Goldman expects volatility to moderate and central-bank buying to reaccelerate, broadly in line with the pace seen in 2025.

Together with incremental private-investor demand tied to potential Federal Reserve rate cuts, that could push gold to $5,400 an ounce by the end of 2026, the bank said.

However, if diversification demand accelerates further — particularly on concerns about fiscal risks in Western economies — volatility could remain elevated. That’s especially true if the flows continue to be expressed through options.

In that case, near-term central-bank demand may be dampened even as prices rise more sharply.

David Miller, the chief investment officer of $10 billion Catalyst Funds, echoed the longer-term case for official-sector demand earlier this month.

“From a mining perspective, there has been some selling by individuals cashing in their gold holdings at higher prices, but nothing on a scale that could offset the 1,000 metric tons of net buying by central banks,” Miller wrote in a note last week.

Miller, who manages a gold ETF, added that central banks are likely to continue buying gold, keeping demand ahead of supply, as mining output can’t be ramped up quickly.

“It appears we’re transitioning back into a longer-term rally, though one that is likely to be much choppier,” he added.