Goldman Sachs turned more bullish on gold
For the first time in more than five years, Goldman Sachs (GS) turned positive on gold (NUGT) in March. Goldman Sachs noted that rising volatility (VXX) and the potential for an additional sell-off in equities makes it bullish on gold despite the higher interest rate outlook. In a report published on November 26, Goldman Sachs reiterated its positive views on commodities, especially oil (USO) and gold. Goldman Sachs expected slower US growth to benefit gold since its appeal as a safe-haven asset increases.
Goldman Sachs raised its gold price forecasts
On January 10, as reported by CNBC, Goldman Sachs analyst, Jeffrey Currie, raised the price forecast for gold to $1,325, $1,375, and $1,425 per ounce for the next three, six, and 12 months, respectively. The forecast implies an almost 10% upside to gold’s price in the next 12 months.
Gold’s fortunes started turning around in October when equities turned fragile. The S&P 500 (SPY), the Dow Jones Industrial Average (DIA), and the NASDAQ Composite (QQQ) fell 14.0%, 11.8%, and 17.0%, respectively, in the fourth quarter. Gold prices (GLD) have gained 7.5%, while the VanEck Vectors Gold Miners ETF (GDX) compounded that gain to a record 14% increase.
Reasons to be bullish
Currie expects gold prices to be supported by more demand for defensive assets. He also thinks that rising geopolitical tensions should incentivize “more central banks to re-enter the gold market.”
Fed Chair Jerome Powell’s dovish statement on January 4 and his statement that the Fed will be more patient with policy moves has given gold another reason to celebrate. Gold’s (GOLD) opportunity costs rise when interest rates increase. So, lower interest rates are usually conducive to gold’s demand.
Goldman Sachs presented one more argument in favor of gold. Currie said, “Rather, we find that as the hiking cycles matures, the usual (negative) correlations between these indicators and gold starts to weaken, or even turn negative. He added, “This is because gold begins to price much more off fear of the next recession than off the opportunity cost of holding gold, or the purchasing power of investors / EM households.”
Read Bulls versus Bears on Wall Street: Time to Buy Gold in 2019? for more on analysts’ outlook for gold prices in 2019.