What Makes Goldman Sachs ‘Extremely Positive’ on Gold in 2019?


Dec. 31 2018, Updated 7:32 a.m. ET

Goldman Sachs turned around on gold

Goldman Sachs (GS) turned positive on gold (GLD) for the first time in more than five years back in March. In a report published in March, GS cited an uptick in inflation and increased risk of a stock market correction as the major reasons for the bullish gold price view. This view from GS came despite its hawkish outlook on the Fed’s rate hikes. GS noted that rising volatility (VXX) and a potential for further sell-off in equities make them bullish on gold despite the higher interest rate outlook.

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Goldman Sachs: Gold ‘extremely attractive”

In a report published on November 26, GS reiterated its positive views on commodities, especially oil (USO) and gold. As Kitco reported, GS stated, “If U.S. growth slows down next year, as expected, gold would benefit from higher demand for defensive assets. At this stage of the business cycle, gold may be particularly appealing as a portfolio diversifier given that long-term bonds (BND)(AGG), traditional safe-haven assets, may be hurt if U.S. inflation surprises to the upside.” GS also cited central bank buying as another factor supporting gold.

Factors favoring gold

GS has been quite right on the direction of gold since its November note. In Central Bank Buys Most Gold in Three Years, we discussed the dynamics propelling central banks toward gold and the outlook. In addition to the Fed’s dovishness, the weaker US dollar (UUP)(USDU) and plunge in equities (SPY)(QQQ) also helped gold prices (GDX). Since the publishing of GS’s November note, gold prices have gained 3.8% as of December 24 while the S&P 500 (SPY), the Dow Jones Industrial Average Index (DIA), and the NASDAQ Composite (QQQ) have lost 12.4%, 11.5%, and 11.9%, respectively.

GS forecasts that gold prices will reach $1,350 per ounce within the next 12 months. We’ll have to wait and see if this forecast proves accurate.


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