Gold Prices: More Like Real Estate Than Oil

According to a recent note from a Goldman Sachs analyst, gold’s pricing behavior resembles that of Manhattan real estate more than that of commodities like oil. Unlike oil and gas, which are consumed, gold is accumulated over time. This accumulation has seen a surge in demand for precious metals recently, resulting in consistently high gold prices.

It’s interesting to note that nearly all the gold ever mined—around 220,000 metric tons—still exists in some form, whether in safes, central bank reserves, or jewelry boxes. The annual increase in gold production is minimal, about 1%, which is due to operational and technical limitations in mining.

The Goldman Sachs analyst remarked, “We can’t pump gold, but we can bid for it from others.” They expanded on the idea that gold isn’t directly consumed, leading to criticism when ownership shifts. “The price of gold reflects who is willing to hold it and who is willing to part with it,” they continued.

This distinction makes gold different from other commodities, where traditional supply and demand dynamics apply, and higher prices can diminish demand. In gold’s case, the market adjusts through changes in ownership instead of production and consumption balances.

The report identifies two buyer categories: “convicted buyers”—including central banks, ETFs, and speculators who are unfazed by price changes—and “opportunistic buyers,” like households in places such as India and China that only purchase when prices are favorable. While opportunistic buyers can create some price stability, it’s primarily the convicted buyers who influence trends.

This scenario evokes the Manhattan real estate market. The total number of apartments is largely fixed, and a small increase in new properties doesn’t significantly affect prices; what truly matters is who is buying at the moment. In Manhattan, there are also two types of buyers—the committed ones, willing to pay whatever it takes, and the more flexible buyers who might consider options in places like New Jersey or Brooklyn.

In both gold and real estate markets, price fluctuations seem less about new supply and more about who’s securing ownership.

Goldman’s analysis suggests that this shift in conviction accounts for roughly 70% of monthly movements in gold prices. A useful rule of thumb they noted is that each 100 tonnes of net purchases driven by conviction can raise prices by about 1.7%.

This analysis comes during a tumultuous year for gold. Prices shot up to an all-time high exceeding $3,500 per ounce back in April, partly due to President Trump’s tariff decisions and ongoing concerns about the Federal Reserve’s independence.

Currently, spot gold is priced at around $3,330 per ounce, reflecting a 27% increase over the year.

Goldman Sachs forecasts that spot prices could hit $3,700 per ounce by the end of 2025, with the potential to reach $4,000 per ounce by mid-2026.