Surprise! Goldman Sachs Remains Bearish On Gold; Sees $1,000 By Year End
Tuesday February 09, 2016 10:27
(Kitco News) - There is at least one bank that is not jumping on the gold bandwagon after prices briefly pushed above $1,200 an ounce Monday, hitting its highest level since mid-June.
Despite the strong performance in gold, Goldman Sachs remains bearish on the yellow metal; in a research report published Tuesday, bank analysts said that they expect gold to fall to $1,000 an ounce by the end of 2016. Comex April gold futures are seeing some modest profit taking Tuesday, with prices last trading at $1,192.30 an ounce, down $5.6 on the day.
The analysts remain bearish on gold as the bank’s economists expect the Federal Reserve will raise interest three times this year, bringing U.S. interest rates to around 1.3%. The bank notes that higher interest rates make gold less appealing to investors because of increased opportunity costs.
With the central bank forecasted to continue raising interest rates, Goldman Sachs sees gold prices at $1,100 an ounce within three months, then down to $1050 at the start of the second half of the year and eventually falling to its year-end target of $1,000 an ounce.
The analysts also said the U.S. economy is still on track for above-trend economic growth this year, which will boost inflation expectations – motivating the Fed to follow through with the plan it laid out in December, when it raised interest rates for the first time in almost a decade.
However, the bank’s interest-rate forecast is at odds with market expectations, which have priced in almost no rate hikes for this year as global economic turmoil grips financial markets. According to Federal fund futures prices, the market is pricing in a 2% chance that the central bank hikes rates at its March meeting. Currently the highest probably of a rate hike is in December, with the futures market pricing in a 21% change of a move.
The market expectations have significantly weakened the greenback, with the U.S. Dollar Index falling to an intra-day low of 96.215, its lowest point since late-October.
Wednesday, Markets will receive important direction in the trajectory of the central bank’s interest rates Wednesday and Thursday when Fed Chair Janet Yellen testifies in her semi-annual appearance before Congress.
Goldman’s Sach’s outlook is not a major shock to the gold market, as the bank has been extremely bearish on gold since early 2013. Many analysts actually attributed the 2013 decline, which saw gold’s biggest drop in 30-years, in part, to Goldman Sach’s initial bearish outlook.