Gold prices could surge past Goldman Sachs's year-end forecast of $4,900 an ounce, driven by surging demand for bullish options contracts that may mechanically accelerate further gains, the bank said on Friday.

Spot gold touched $4,601.29 an ounce on Friday, its highest level since May 15, before extending gains to $4,641.27 on Monday. New York gold futures broke through $4,700 an ounce, reaching $4,713.80, a fresh high since May 14.

"Gold call option demand has risen sharply amid renewed demand for global macro-policy hedges, creating a mechanical price amplifier to both the upside and downside," Goldman said in a note.

The options dynamic cuts both ways. As gold climbs toward key strike levels, dealers who sold call options may be forced to buy bullion to hedge their exposure, amplifying the rally. But a price pullback could trigger dealers to unwind those hedges, deepening any sell-off.

The bank said gold's move toward $4,600 has been driven by receding expectations of a September US Federal Reserve rate hike, following the Fed's July policy hold and softer labour and inflation data.

The July nonfarm payrolls report, released on August 7, showed a change of -23,000, far below the expected +83,000, with May and June figures revised down by a combined 103,000. The unemployment rate edged down from 4.2% to 4.1%. July CPI inflation, released on August 12, came in at 3.4% year-on-year, down from 3.5%, while core CPI eased to 2.5% from 2.6%.

That data has revived speculative positioning on COMEX, where gold short positions are at a five-year low, and boosted exchange-traded fund demand. A Morgan Stanley report on August 20 showed global gold ETFs achieved net inflows of 70 tons from July to August, reversing net outflows of 93 tons from May to June. On August 20 alone, SPDR Gold Shares holdings increased by 4.28 tons to 1,038.9 tons.

"Renewed increase in Fed-hike expectations could likewise trigger dealer hedge unwinds and produce a sharper-than-usual correction," the note cautioned.

Goldman reaffirmed its $4,900 year-end forecast in Friday's report, pointing to continued strong central bank buying and renewed interest from Western investors as additional drivers that could push bullion toward key option strike levels.