If the "capital tax" is implemented in the United States, Goldman Sachs expects the central bank will buy more gold

Gold demand may further increase, depending on whether the "Section 899" provision is implemented. Goldman Sachs' latest report from its precious metals team indicates that global central banks and official institutions (excluding the United States) purchased 68 tons of gold through the London over-the-counter (OTC) market in April this year, significantly higher than the pre-pandemic monthly average of 17 tons in 2022. So far this year, the average monthly gold purchases by central banks have reached 88 tons, slightly exceeding Goldman Sachs' original forecast of 80 tons per month by mid-2026. Goldman Sachs pointed out, if the Section 899 tax bill currently being discussed in the U.S. leads to a reduction in central banks' allocation to U.S. Treasury bonds, gold demand may further strengthen. Section 899 is one of the tax changes currently under consideration by the U.S. Congress, and its wording is vague, not clearly stating whether the interest earned by foreign central banks holding U.S. Treasury bonds will be subject to withholding tax. If implemented, it could weaken the attractiveness of holding U.S. Treasury bonds for foreign central banks, leading them to increase their holdings of gold and other non-dollar assets. Nevertheless, Goldman Sachs economists believe that the likelihood of this tax reform being canceled or postponed is high. On one hand, the U.S. Senate is likely to reject this provision. On the other hand, even if passed, central banks and other sovereign investors may be explicitly exempted or the implementation date may be postponed until 2027. Goldman Sachs reiterates its bullish stance on gold trading and points out that as gold continues to serve as a safe-haven asset, it maintains its previous forecast that strong central bank gold purchases will drive gold prices up to $3,700 per ounce by the end of 2022, and further to $4,000 per ounce by mid-2026. According to a previous article from Wall Street Insight, due to the significant increase in gold purchases by global central banks and the surge in gold prices, gold has replaced the euro as the second-largest reserve asset held by global central banks, second only to the U.S. dollar