Why Is Goldman Sachs Still Bearish on Gold?
Goldman Sachs on gold
While investors worldwide have been interested in the performance of gold this year, Goldman Sachs, one of the top Wall Street banks, has remained increasingly negative on the precious metal. Gold has risen a whopping 21.9% since the year began and has managed a 5.8% increase during the month of April. The haven bids on gold have been responsible for the tremendous rise in the price of gold. Even with the slightest increase in uncertainties in the Market, gold emerges as a savior, and investors opt for this traditionally important store-of-value asset.
According to a Goldman Sachs analyst, the underperformance of the US economy and the delayed interest rate hike are significantly impacting gold. In February 2016, the bank forecast the 12-month price of gold to be around $1,000 per ounce.
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Weakness of the US dollar and gold
The weakness of the US dollar is helping gold. The lack of conviction in growth in the US economy is pushing the US dollar even lower. Goldman Sachs believes that US data don’t support a realigned view of weak global growth. If the Federal Reserve gains confidence in the country’s economic performance and raises the interest rate this year, the US dollar will become stronger and weigh down gold.
With a higher rate of interest offered on Treasuries, investors may diverge their funds to these higher rate bearers, deserting gold. The impact of the price of gold also significantly affected mining-based funds such as the VanEck Vectors Gold Miners ETF (GDX), the Sprott Gold Miners ETF (SGDM), the iShares MSCI Global Gold Miners (RING), and the ProShares Ultra Gold (UGL).
According to Goldman Sachs, China’s economy, low oil prices, and bank risks due to negative interest rates were the factors that pushed gold prices higher. It expects the price of gold to recede in the near term.