Gold is often classified as a commodity, but Goldman Sachs argues it behaves less like oil or natural gas and far more like Manhattan real estate.
In a recent note, the firm’s analysts highlighted that gold’s pricing is driven less by traditional supply-and-demand dynamics and more by changes in ownership and investor conviction. For wealth advisors, understanding these dynamics is essential when discussing allocation strategies with clients seeking diversification or protection against volatility.
Unlike oil, gold isn’t consumed. Nearly every ounce ever mined still exists today, largely stored in central bank vaults, ETFs, or held as jewelry. With an estimated 220,000 metric tons in existence, annual mining adds just over 1% to the total stock—an increase constrained by technical and operational limits. This makes supply relatively fixed, leaving shifts in ownership as the main force behind price movements. Goldman put it succinctly: “You can’t pump gold—but you can bid it out of someone’s hands.”
For advisors, this distinction matters. In most commodities, higher prices tend to reduce demand and bring the market into balance. Gold doesn’t function that way. Instead, its market clears through the willingness of buyers and sellers to hold or part with the metal. That makes gold more akin to high-value real estate in Manhattan, where the limited number of apartments ensures that pricing is dictated not by new construction but by the marginal buyer.
Goldman divides gold investors into two broad categories: conviction buyers and opportunistic buyers. Conviction buyers—central banks, ETFs, and long-term allocators—acquire gold irrespective of price. They are motivated by strategic considerations such as reserves management, portfolio hedging, or distrust in fiat currencies. Opportunistic buyers, by contrast, are typically households in emerging markets like India and China, where gold carries cultural significance and serves as a store of value. These buyers are highly price-sensitive and step in when gold becomes more affordable.
The interplay between these two groups creates stability and momentum in the gold market. Opportunistic buyers provide a floor during corrections, ensuring demand doesn’t collapse. But conviction buyers, by steadily absorbing supply at almost any price, set the trend. According to Goldman’s analysis, conviction flows account for roughly 70% of month-to-month price movements. As a practical measure, the bank estimates that every 100 tons of net buying by conviction investors drives prices higher by about 1.7%.
This framework has clear implications for advisors. When conviction buyers are dominant—particularly central banks adding to reserves or institutional investors rotating into gold ETFs—the probability of sustained price appreciation increases. Conversely, when the market leans heavily on opportunistic buyers, upside potential may be capped, but downside risks are buffered. Advisors can use this dynamic to help clients understand why gold behaves differently from other commodities and why it may deserve a dedicated role in portfolios.
The Manhattan real estate analogy reinforces this point. In New York, the total number of apartments is largely fixed, and while some new construction occurs, it does little to drive overall prices. Instead, values shift depending on the marginal buyer: wealthy individuals who will pay any price to live in Manhattan represent conviction demand, while those who would otherwise live in surrounding areas represent opportunistic demand. Similarly, gold’s price trajectory hinges not on production but on which group of buyers is most active at a given time.
Gold’s current market backdrop provides further context. Prices surged to an all-time high above $3,500 per ounce earlier this year, fueled by heightened geopolitical uncertainty, President Trump’s tariff announcements, and concerns over the Federal Reserve’s independence. Spot gold has since eased slightly, trading near $3,330 per ounce, but remains up 27% year-to-date. Such gains underscore its appeal as both a hedge and a momentum asset during turbulent periods.
Looking ahead, Goldman Sachs projects that spot gold will climb to $3,700 per ounce by the end of 2025 and reach $4,000 per ounce by mid-2026. These targets are based largely on expectations of continued conviction buying, particularly from central banks diversifying reserves and investors hedging against political and monetary instability.
For advisors, the takeaway is twofold. First, gold is unlikely to respond to traditional commodity cycles, making it a valuable diversifier in multi-asset portfolios. Second, its long-term trajectory is increasingly being shaped by institutional flows rather than tactical, short-term demand. Positioning gold for clients as a strategic allocation—rather than a trade based on consumption-driven dynamics—aligns with the way the market truly functions.
In periods of uncertainty, when investors seek assets that hold their value regardless of broader economic conditions, gold tends to outperform. Understanding the forces behind its price—ownership shifts, conviction buying, and limited new supply—equips advisors to guide clients toward more informed decisions about incorporating gold as part of a resilient portfolio strategy.
