Investors Moving From Dollar To Gold Will Provide Next Boost for Yellow Metal

Chennai: Having already gained 25 per cent this year, gold will receive its next boost when private investors start reallocating their dollar holdings into gold, finds Goldman Sachs.

Gold, which has already gained 25% this year, could climb further as central banks continue to diversify their reserves away from the US dollar. The next boost for the yellow metal could come “if private investors—who often feel like they're overallocated to the dollar—reallocate, to some extent, out of dollar holdings into gold,” Daan Struyven, Goldman Sachs Research's co-head of global commodities research said in a blog post.

“That could be the next giant leap for gold, because the gold market is 200 times smaller than the US S&P 500. It's a hundred times smaller than the US Treasury market. So, you only need a very small shift of flows into the much smaller gold market to cause a very significant gold price upside,” Struyven said.

According to Kedia Commodities, the US dollar was down by 11 per cent in the first half of the year and this was the worst first half for the greenback in more than 45 years.

Goldman Sachs Research had earlier predicted gold to rise to $3,700 a troy ounce by the end of 2025 from the current $3300 levels.

“If Indian rupee remains weak at 87, this could see gold prices move up to Rs 1,05000 per 10 gm,” said Ajay Kedia, MD, Kedia Commodities.

The tariff war, which can potentially push inflation higher, can force the US Federal Reserve to maintain elevated interest rates. However, if economic growth slows significantly due to trade restrictions, the Fed might need to cut rates, potentially weakening the dollar.

Further, the US trade deficit could narrow if tariffs successfully reduce imports. But retaliatory measures from trading partners can reduce US exports. The net impact on the dollar will depend on whether import reduction outweighs export losses from retaliatory measures.