Goldman Sachs flags dollar gains, gold at $4,900 on conflict

The dollar is beginning to appreciate as the Middle East conflict pushes oil and gas prices higher in Europe, Goldman Sachs Chief FX Strategist Kamakshya Trivedi said Thursday, adding to inflationary pressures that could reshape central bank policy.

"You're beginning to see now the levels of increases in gas prices in Europe, in oil prices," Trivedi, chief foreign-exchange and emerging-markets strategist at Goldman Sachs, said in a Bloomberg Television interview.

The conflict has sent European natural gas prices up sharply and pushed crude benchmarks higher, compounding inflation concerns that had already been complicating the policy outlook for the European Central Bank and the Federal Reserve. The Bloomberg Dollar Spot Index has strengthened as the energy shock reinforces the greenback's safe-haven appeal while threatening growth in import-dependent economies.

A sustained dollar rally would tighten financial conditions globally, pressuring emerging-market currencies and raising import costs for countries reliant on dollar-denominated debt. The trajectory now depends on how far energy prices climb and whether central banks respond by delaying rate cuts — a scenario that would keep the dollar bid through year-end.

The conflict's impact on energy markets comes at a time when the Federal Reserve is navigating the final stages of its easing cycle. The Fed delivered a third straight 25-basis-point cut in December 2025, bringing the funds rate to 3.50%-3.75%, with Chair Jerome Powell suggesting a pause to assess inflation durability and labor-market conditions. A renewed energy-driven inflation spike could delay further cuts, keeping U.S. yields elevated relative to other developed markets and reinforcing dollar strength. In currency markets, the dollar has already gained against the yen, with USDJPY testing resistance near 155 as the interest-rate differential between the U.S. and Japan remains one of the widest in the Group of 10.

Goldman Sachs has also revised its gold price forecast higher, projecting the metal will climb to $4,900 per troy ounce by late 2026, according to a research note from analyst Lina Thomas. The bank cited unprecedented central bank accumulation as the primary catalyst, with monetary authorities worldwide acquiring 81 tonnes of gold in May alone — nearly four times the pre-2022 monthly average of 17 tonnes. The People's Bank of China accounted for 48 tonnes of that total, indicating a structural shift in reserve management among emerging-market central banks.

Dollar Strength Tests Emerging Markets

For emerging-market economies, a stronger dollar compounds existing pressures from higher energy import bills. Countries with large current-account deficits and dollar-denominated debt — including Turkey, South Africa and parts of Southeast Asia — face the highest risk of currency depreciation and capital outflows. The last time oil prices sustained a rally above $90 a barrel during a period of dollar strength, in 2022, emerging-market currencies weakened an average of 8% over three months, according to JPMorgan data.

What Comes Next

The outlook hinges on whether the Middle East conflict escalates further or stabilizes. A prolonged disruption could keep oil above $90 and European gas prices elevated through the northern hemisphere winter, forcing the ECB and the Bank of England to hold rates higher for longer. That would maintain the yield advantage that has supported the dollar against the euro and sterling. Conversely, a de-escalation could trigger a sharp unwind of dollar longs, particularly if the Fed resumes cutting in the second half of 2026.

For investors, the Goldman view reinforces the case for continued dollar strength in the near term while hedging against the risk of a sudden reversal. The options market is already pricing elevated volatility in EURUSD and USDJPY, with one-month risk reversals favoring dollar calls.

This article is for informational purposes only and does not constitute investment advice.