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Thursday, February 7, 2019

Goldman Sachs Revises Its Gold Forecast Upwards

goldman sachs gold

Change Comes Just Weeks After Initial Forecast

Goldman Sachs is among the latest to go long gold amid a re-emergence of interest in defensive assets. A few weeks ago, the bank updated its gold forecast for 2019, from $1,350 to $1,425, citing risk aversion as the primary reason.

Now, in a more recent interview, Goldman's global head of commodities research Jeffrey Currie reiterated the bank's forecast with an upgrade. According to Currie, fears that another recession is around the corner could be a key driver behind gold's outperformance this year.

Although the markets, for the most part, retain the image of stability, numerous analysts have stated that a crisis could be brewing. The threat of stagnant growth in both the U.S. and Europe is ever-looming, and central bank policies have likewise done much to reinforce concerns.

Many have pointed out that nearly every U.S. hiking cycle has ended in a recession, and the Federal Reserve now appears to be slowly putting the wrap on a tightening cycle that started in 2015. The Fed appears to have been rushed along by equity downturns and other red flags, which are a recessionary concern of their own. To top it off, numerous central banks around the world are aiming to tighten monetary policy in the near future.

Currie highlighted the recent central bank bullion purchases, noting that the resulting "wealth effect" is enough to push gold prices to $1,425. Last year, the Indian government took cues from its people as it re-entered the gold market with a 70-ton purchase. Chinese bullion buying is also expected to intensify moving forward.

This is on top of standard buyers like Russia, Kazakhstan and Turkey, whose regular purchases act as perpetual support for gold prices. Bart Melek, head of global strategy at TD Securities, said that central bank gold holdings grew by 3,900 tons, or 13%, since 2009. The forecast that reserves will expand by another 800 tons in the next two years could push gold past the already-bullish expectations, said the strategist.

In his report, Melek explained that central banks are looking to diversify away from the U.S. dollar as the global market faces the prospect of another superpower in China. Melek thinks India's economy is another one to look out for, and the strategist believes the densely-populated nation could soon become a major player on the global scene.

Currie said that rising geopolitical tensions are another reason why central banks are looking for protection. Out of the various flare-ups, the U.S.-China trade standoff could prove to be the most beneficial for bullion due to the inflationary implications of the conflict.

Goldman's stance that long gold is the best commodity play is unsurprising, as the metal continues to outperform both equities and other commodities. Building up on the bank's previous forecast of $1,425 an ounce, Currie now sees gold reaching $1,450 sometime this year.

Tuesday, January 15, 2019

Goldman Sachs Analyst Shares Why Bank is Raising its Gold Forecast for 2019

Goldman Sachs sees gold soaring to $1,425 over next 12 months.

goldman sachs forecast for gold in 2019

In a recent note to clients, Goldman Sachs' analysts announced that the bank is raising its forecast for gold going into 2019, reports CNBC. Goldman's previous forecast was bullish in its own right, with the bank calling for $1,250, $1,300 and $1,350 an ounce over the three, six and 12-month periods, respectively.

But now, the analysts expect gold to inch even higher this year. According to a CNBC article, Jeffrey Currie, Goldman's head of commodities research, said in the note that gold will hit $1,325 in the next three months before moving on to $1,375 by the end of the second quarter. The bank sees gold soaring to $1,425 over the next 12 months.

In the note, Currie explained that the change in forecast centers around a quick reversal of sentiment following a re-emergence of risk, states the article. Whereas the previous year saw many investors chase profits backed by the confidence from a strong dollar, the landscape in 2019 could be markedly different.

Various reports indicate that U.S. growth could be heading towards a slump after a prolonged era of Fed-fueled optimism. The U.S. Purchasing Managers Index (PMI) slipped to a 15-month low in December, with manufacturers' confidence in business likewise dropping to the lowest level in almost two years. According to the article, these economic reports build on existing concerns that the Fed has thus far largely ignored, such as the prospect of peaked-out employment.

Nonetheless, the central bank appears ready to dial down on its hawkish rhetoric, with Fed Chair Jerome Powell recently assuring market participants that officials will be ready to adjust the hiking strategy based on market response.

Currie noted that the traditional correlation between rate hikes and gold could be absent this year. According to the article, despite some feeling that higher rates reduce the appeal of owning bullion, Currie firmly believes that risk aversion and fears of a recession will trump the desire for bigger profits.

Recessionary concerns appeared to be validated last month, when U.S. stocks suffered their worst December since the Great Depression. The performance was especially striking as the final month of the year tends to be a strong one for equities. Gold returned more than 4% in that month, and in doing so outperformed the previously record-setting stock market.

Currie stressed that the shift in sentiment will be a key driver of gold prices this year, reports the article. Besides individual investors, the analyst said that central banks will adjust their strategies in accordance and continue upping their monthly bullion purchases. Governments already showed a heavier-than-usual predisposition towards gold in 2018, with data suggesting that total central bank purchases for the year exceeded 450 tons.