Goldman Sachs Sees $1,375 Gold At End Of 2019
The investment bank suggested in a report Thursday that rising wealth in emerging-market economies will more than offset reduced marketplace fear that often drives demand in nations with developed economies.
The investment bank last week released a report titled “Fear And Wealth,” saying that the precious metal remains a “relevant asset” class sought as a safe haven during troubled times in developed-market nations, while purchases in emerging-market economies are tied to rising incomes.
“To understand how fear and wealth drive gold prices, it is useful to review the two bookends of gold prices -- $253/toz [troy ounce] in 1999 and $1,888/toz in 2011,” the bank said in a fresh report Thursday. “In 1999, the fear factor in DM was very low given the tailwind the Asian financial crisis created against a backdrop of headlines that suggested ‘Who needs gold when you have [former Federal Reserve Chairman Alan] Greenspan?’ At the same time, EM wealth had been devastated along with their demand for gold, so the lack of fear and wealth put downward pressure on gold prices.”
In contrast, in 2011 during the midst of the European sovereign-debt crisis, fear in developed-market nations was “extremely high,” while China was posting strong growth in gross domestic product, allowing the country to buy dollar-denominated gold. Thus, both the fear and wealth factors worked together to drive prices higher.
“Going forward, fear is likely to continue to subside as growth remains strong, putting downward pressure on gold prices, but offsetting this weakness is improved wealth in the emerging markets,” Goldman Sachs said.
This is likely to create demand for gold, the bank said.
“As a result, our end-of-2019 target for gold is $1,375/toz, modestly higher from here,” Goldman concluded.
The view was listed in a report on the broader commodity sector, with Goldman pointing out commodity indices are mostly flat for the year due to a 4% decline in energy prices and 12% decline in agriculture, even though base metals collectively are up 25% for the year to date and precious metals are up 10%.
The bank remained upbeat on the commodity sector as a whole, commenting that the maturing business cycle remains intact. Goldman also updated its copper outlook, lifting its forecast for the London Metal Exchange copper in 12 months to $7,050 per metric ton from $5,500 previously, citing stronger demand, a weaker U.S. dollar and supply disappointments.