Why Is Goldman Sachs Extremely Sold on Gold in 2019?


Dec. 19 2018, Updated 9:00 a.m. ET

Goldman Sachs is positive on gold

In a report published on November 26, Goldman Sachs (GS) stated that commodities (COMT) could climb 17% in the coming months. It believes that commodities will escape a 2015-style price collapse. Among commodities, GS is particularly bullish on oil (USO), gold (GLD), and base metals (DBB). According to CNBC, Goldman Sachs said, “Given the size of dislocations in commodity pricing relative to fundamentals with oil now having joined metals in pricing below cost support, we believe commodities offer an extremely attractive entry point for longs in oil, gold and base.”

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Gold is regaining lost ground

While gold’s year-to-date performance remains lackluster, it has regained some lost ground in the last few months. As equity and bond markets continued to struggle, gold made the best of the situation. It has gained 6% since hitting its low on August 16, 2018. Apart from expected Fed softness, the weaker US dollar (UUP) (USDU) and plunge in equities (SPY) (QQQ) also helped gold prices (GDX). Fears of a potential US recession also gripped the markets as part of the yield curve (BND) remains inverted.

In addition to recent market weakness, investor concern regarding future growth potential is also expected to provide support to gold prices. GS has additionally stated, “If U.S. growth slows down next year, as expected, gold would benefit from higher demand for defensive assets.”

Go gold

GS also mentioned that market participants have already priced in ten rate hikes out of the 12 it expects from the Federal Reserve. GS expects gold to remain supported through central bank buying. In Central Bank Buys Most Gold in Three Years, we discussed the dynamics propelling central banks toward gold and the outlook.

You can read Could Market Risks Bring Investors Back to Gold in 2019? for more factors driving gold and its outlook.


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