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Goldman Sachs: Higher Real Rates To Ding Gold In Next Half Year

Kitco News

(Kitco News) - Goldman Sachs analysts look for gold to pull back in the next half year as real interest rates rise but are “agnostic” for the longer term due to uncertainty about U.S. interest rates further down the road.

Analysts also look for a pullback in silver and palladium but gains for platinum.

In a research note released Wednesday, Goldman listed three-, six- and 12-month price targets for gold of $1,200, $1,200 and $1,250 an ounce, respectively. Comex June gold was trading up $2 at $1,276.30 an ounce as of 10:09 a.m. EDT.

“Although it is possible that further unwinding of the Trump-related equity trades or escalation in heightened geopolitical tensions pushes gold even higher in the next several weeks, we think that over the next three months, improvement in U.S. hard growth data and subsequent increase in real rates would bring gold prices down,” Goldman said.

Analysts later added, “Longer term, we still remain agnostic on gold as our primary commodity view is one of a stronger cyclical backdrop and how the U.S. central bank responds to this environment and hence the path real interest rates follow is still uncertain. Accordingly, we maintain our 12-month target at $1,250.”

The bank’s analysts called for silver to be at $16.50 in three and six months, then $17.20 in a year. Comex May silver was last up 6.1 cents at $18.315 an ounce.

Meanwhile, Goldman looks for platinum prices to rise. The metal has weakened since February due softening supply/demand fundamentals and a weakening of the South African rand as a result of political uncertainty in South Africa, where most primary platinum is produced, Goldman said. Analysts said the platinum market remains in a “structural surplus.”

The bank’s three-, six- and 12-month platinum forecasts are all $1,050 an ounce. Nymex July platinum was last down $2.40 to $967.10 an ounce.

Goldman offered caution, saying the metal’s outlook could change if the rand comes under increased pressure. This means producers become more profitable since they get more rand when they sell platinum in dollar terms, thus can mean higher production. Conversely, however, a stronger rand would be an upside risk for the metal.

“At the same time, platinum could get some short-term support from elevated geopolitical, political risks
and U.S. policy uncertainty, leading to more safe-haven demand for precious metals,” Goldman said.

The bank forecasts a decline in palladium prices. Many pundits are bullish on this metal, with the market in a supply deficit.

“However, we believe that the positivity is more than priced in and the metal is trading near its peak,” Goldman said. “The recent auto sales data from both U.S. and China -- the biggest consumers of
palladium -- has been disappointing, despite which palladium has remained strong.”

Meanwhile, speculators remain “extremely long” in the futures market, which means near-term downside risk should they liquidate, analysts said. Further, any U.S.-imposed trade restrictions could mean higher prices for autos in the U.S., thus lower sales, Goldman said. The car sector is important to the palladium market since the metal is used in catalytic converters.

All of this means that “we believe that the near-term risks to the commodity price are skewed to the downside,” Goldman said.

The bank listed three-, six- and 12-month palladium forecasts of $775, $750 and $725 an ounce. Nymex June palladium recently traded at $790.45 an ounce, down $12.65 for the day.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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