Goldman Sachs lowers forecast
After Donald Trump won the US presidential election on November 8, gold initially climbed above $1,300 per ounce. Shortly after that, it returned to its original trading range and fell even lower after that. Gold lost its strength due to the improved outlook for the US economy.
It’s important for investors to keep tabs on forecasts offered by the major investment banks such as Goldman Sachs (GS). On Monday, November 21, Goldman Sachs downgraded its three-month and six-month forecasts for gold to $1,200 per ounce.
Goldman Sachs based its forecast on its belief that the precious metal could be pressured by continued economic growth and liquidation from exchange-traded funds. However, the bank forecasts gold’s price to be $1,250 per ounce a year from now.
The prospect of increased infrastructure spending prompted a rally in risky assets, as well as real interest rates. As these two factors have a primarily negative correlation with precious metals, they saw downward motion. Goldman Sachs also noted the vanishing funds from the gold-based ETFs.
Miners and analysts
The mining-based stocks that were negatively impacted after Trump’s victory include Primero Mining (PPP), Alamos Gold (AGI), Gold Fields (GFI), and Sibanye Gold (SBGL). These four companies together comprise ~7.7% of the VanEck Vectors Gold Miners ETF (GDX).
For 2017, analysts outlined an average gold price forecast of $1,217 per ounce, which is close to current prices, compared to their previous forecast of $1,261 per ounce. However, analysts didn’t change their 12-month and 2018 price forecasts of $1,250 per ounce.
Analysts cited historically high valuations for asset classes such as equities and bonds, as well as expectations that mine supply growth could weaken over the next 12–24 months. They also expressed expectations that China’s currency could depreciate further, potentially supporting gold ETF purchases.