Gold prices collapsed violently late last week after President Donald Trump nominated Kevin Warsh as the next Fed Chairman, yet Goldman Sachs says the move may say more about positioning and market mechanics than about the underlying bull case.
In a note shared Wednesday, Goldman commodity analyst Lina Thomas indicated that the dramatic reversal in gold and silver prices was largely driven by Western derivatives flows — not a breakdown in structural demand — and that the longer-term outlook for gold remains firmly skewed to the upside.
What Drove January's Big Moves And Friday’s Historic Slump In Gold And Silver
Gold and silver surged aggressively into January, rising roughly 24% and 60%, respectively, to intraday highs near $5,600 per ounce for gold and $120 per ounce for silver.
That rally, Goldman says, was not just a response to macro uncertainty — it was mechanically amplified by options positioning.
Data shows that call option activity on SPDR Gold Shares (NYSE:GLD), the world's largest gold ETF, became heavily skewed toward upside exposure as geopolitical tensions rose and Japanese bond yields jumped.
Call open interest net of puts climbed to roughly three times its 2021–2024 average.
As spot prices approached key strike levels, dealers who sold calls had to buy physical or futures gold to hedge, mechanically driving prices even higher.
On Jan. 29 and Jan. 30, gold and silver retraced sharply. Gold gave back about 13% while silver slid roughly 31% in a two‑day unwind.
The initial pullback on Jan. 29 coincided with softer overnight Microsoft earnings and spillovers into equity markets.
“The larger decline on January 30 followed the announcement that President Trump nominated Kevin Warsh for Fed Chair, which appeared to reduce demand for macro‑hedging expressions,” Thomas said.
The announcement appeared to reduce demand for macro hedging trades. As prices fell, dealer hedging flipped from buying into strength to selling into weakness.
Investor stop-outs followed. Losses cascaded through the system.
Silver's drop was far more severe. Goldman Sachs said liquidity in the London market remains tight, which magnifies price swings in both directions.
Gold’s 2026 Outlook: Upside Risk Still Dominates
Despite the turbulence, Goldman reiterated that it sees significant upside risk to its gold forecast of $5,400 per ounce by December 2026.
The forecast assumes central banks maintain their recent pace of accumulation, averaging about 60 tons per month over the past year. It also assumes private investors increase gold ETF purchases as the Federal Reserve cuts rates.
The bank also sees additional upside risk from further private‑sector diversification into gold, a dynamic not fully captured in the base forecast.
Western financial portfolios currently allocate just ~0.20% to gold ETFs, implying room for growth. Goldman estimates that every 1 basis‑point increase in gold's share of U.S. financial portfolios—driven by new investor purchases rather than price effects—could lift the gold price by about 1.5%.
“In silver, we continue to advise volatility-averse clients to remain cautious,” Thomas said.
“The persistent London liquidity squeeze adds an additional layer of extreme price behavior on top of the same call‑structure‑driven volatility seen in gold,” she added.
What Investors Should Watch
Investors should monitor ongoing central bank purchases, developments in Fed policy and rate expectations, and flows into gold ETFs as potential tipping points for further upside in bullion prices.
Option positioning and liquidity conditions—particularly for silver—remain key factors in how price action unfolds in coming months.
In sum, while January's dramatic moves were unnerving for some, Goldman's analysis frames them as mechanically driven by hedging flows rather than a break in the underlying bullish fundamentals for gold.
The bank's forecast and commentary suggest that central bank demand and potential diversification flows into gold remain the dominant forces shaping the long‑term outlook.
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