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Goldman Sachs: Don’t Be Fooled by Gold’s Comeback

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Oct. 23 2015, Published 11:56 a.m. ET

What is Goldman Sachs saying?

We’ve seen the yellow bullion recover, leaving the price almost flat over the 2015 calendar year. Goldman Sachs has commented on the gold outlook for the rest of the year. Gold has increased 3.3% on a 30-day trailing basis. Silver, platinum, and palladium have seen a rise in prices of 7.4%, 8.6%, and 6.4%, respectively.

Goldman warns investors against the revival of bullion prices and suggests pessimism. In an interview with Bloomberg on Tuesday, October 20, 2015, Jeffrey Currie of Goldman Sachs said, “With the more positive outlook on the dollar, and with debasement risk starting to fade, the demand to use gold as a diversifying asset against the U.S. dollar becomes less and less important.” He added, “There is a probability that the market trades below $1,000 this year given our broader commodity view.”

Interest rates and equity

Though gold has regained some of its shine in the past month, it doesn’t necessarily mean the negative outlook for gold is out of the picture. Gold has rallied 8% since July, reflecting a lower expectation for a US interest rate liftoff.

Gold was trading at $1,166 per ounce as of Thursday, October 22, 2015. The rise in gold prices is also likely backed by the increased volatility of the equity markets. According to Goldman Sachs’s comments, the growth in Chinese gold physical demands in the third quarter has also been a supporting factor for the bullion.

Whether or not the Fed decides to raise the interest rate will affect the relative price of gold and other precious metals. Gold is known for its haven demand. This demand will be negatively affected if the interest rate increases. The non-interest-bearing gold may likely slip.

A fall in the price of gold may cause ETFs backed by gold such as the SPDR S&P Metals and Mining ETF (XME) and the SPDR Gold Shares ETF (GLD) to retreat. Mining stocks such as Iamgold (IAG), Newmont Mining (NEM), New Gold (NGD), and Primero Mining (PPP) may follow the bullions.

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