Wall Street Insights

Last Friday, the price of gold hit $2885 per ounce, marking a new all-time high. Although the current high market positioning has reduced the appeal for short-term investors, Goldman Sachs continues to advise holding gold for the long term and recommends long-term gold trading strategies, especially for those looking to hedge against risks from U.S. policies.

The price of gold hit $2885 per ounce on Friday, marking a new all-time high.

The financial blog ZeroHedge states that concerns over tariffs have caused market positions to rise to the 91st percentile, the highest level since 2014. This aligns with Goldman Sachs' prediction that tariff hedging is driving gold prices up by 7%.

According to a recent report by the Goldman Sachs Commodity Research Team, gold prices could see a moderate tactical retreat if tariff uncertainties subside and market positions normalize.

Although Goldman Sachs' baseline forecast is for gold prices to gradually adjust before the second quarter of 2026, if speculative positions quickly return to their long-term average, gold prices may fall to $2,650 per ounce (a 7% decrease).

Meanwhile, the central bank is continuing to purchase gold (expected to drive a price increase of 11% by Q2 2026), alongside a gradual rise in ETF holdings (forecasted to yield a 4% increase during the same period), further supported by the Federal Reserve's interest rate cuts, all contributing to Goldman Sachs' target of $3,000 per ounce in Q2 2026.

However, ZeroHedge analysis suggests that the fundamental issues in the precious metals market are worsening. When there is a price difference between the New York COMEX futures price and the London spot gold price (referred to as Exchange-for-Physical, or EFP), if the COMEX futures price is higher than the London spot gold price, arbitrageurs will buy cheaper gold in London, melt 400-ounce gold bars into 100-ounce gold bars, then transport them to New York via commercial planes for COMEX delivery to make a profit. This arbitrage trading typically keeps gold prices in New York and London in sync.

However, due to market concerns regarding the 10% tariffs on US gold, EFP has seen a notable increase recently. Transporting gold to the US involves expenses, for instance, refining it through Switzerland to meet COMEX delivery standards. These costs affect arbitrage profits. If a 10% tariff is imposed on all gold imports to the US, the transportation of gold will become even costlier, potentially rendering arbitrage trading unprofitable.

Traders have begun moving gold to the United States in anticipation, causing a gold shortage in London and a spike in gold leasing rates. Currently, the one-month gold leasing rate, a key indicator of physical demand, has reached a historic high as market traders compete to secure physical gold to take advantage of EFP price differentials for profit.

This resulted in a 64% increase in inventory at the COMEX exchange ($37 billion), with traders delivering physical gold to hedge against short positions in COMEX.

If the US tariffs go into effect, an analysis by ZeroHedge suggests that the price difference between COMEX and London gold prices (EFP) could surge to nearly 10% in the short term, before ultimately settling back to a range of 0-10%, based on the supply and demand dynamics in the London and US markets.

Although Goldman Sachs' baseline forecast suggests that precious metals will not face tariffs (while they anticipate that industrial metals will be taxed), the tariff risk premium will continue to exist on the EFP curve.

At the same time, the silver market is experiencing a similar scenario where the one-month lease rate has reached a record high, causing the forward curve to invert (despite the SOFR rate being over 4%).

Moreover, traders are competing to purchase silver to take advantage of arbitrage opportunities.

Ronan Manly of Bullion Brief noted that the market is currently at a crucial juncture:

The London Precious Metals Clearing Limited (LPMCL) has run out of deliverable gold in its vault and is therefore trying to borrow gold through the Bank of England's gold lending market, but this option is also becoming increasingly challenging.

These clearing banks such as JPMorgan Chase, HSBC, UBS, and Standard Chartered Bank are required to hold a specific level of London gold reserves to secure liquidity. However, it appears that they currently do not possess enough gold to fulfill this requirement.

The counterparty risk is rising among members of the London Bullion Market Association (LBMA), including market makers, clearing institutions, and approximately 50 other trading and brokerage firms.

In the market, what is being traded are "gold debt claims" (i.e., electronic gold notes), which are currently being discounted because they cannot be converted into physical gold at any time.

The borrowing rate for short selling GLD (the world's largest gold ETF) surged from 2.44% to 6.29% within a few hours, underscoring the panic in the market.

Manly warns: This indicates that the market is in total panic... the London market no longer has gold support! Nevertheless, Goldman Sachs maintains its target of $3,000 per ounce for gold prices in the second quarter of 2026. Goldman Sachs believes that the continuing uncertainty in U.S. policies could lead to a long-term rise in safe-haven demand from central banks and investors, thereby presenting an upside risk to the gold price target of $3,000 per ounce. Despite the high current market positions which reduce the short-term investors' entry points attractiveness, Goldman Sachs still advises holding gold for the long term and continues recommending long-term gold trading strategies, particularly for investors looking to hedge against US policy risks. Risk Advisory and Liability Disclaimer The market carries risks, and investments should be made with caution. This article does not provide personal investment advice and does not consider the individual investment goals, financial situations, or needs of specific users. Users should assess whether any opinions, views, or conclusions presented in this article align with their particular circumstances. Therefore, any investment decisions made based on this information are taken at one's own risk.