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Goldman: Gold Prices To Fall Into Mid-2018, Rally Into 2020

Kitco News


Editor's Note: View Kitco News' full 2018 outlook coverage

(Kitco News) - Goldman Sachs looks for gold prices to slide to around $1,200 a troy ounce in the middle of 2018 as general marketplace fears subside, but then to rise to $1,375 by the end of 2020 as demand from emerging-market nations grows.

Goldman called for silver to fare better than gold, rising by the end of 2018. The precious-metals forecasts were included in a commodities outlook released Tuesday, with Goldman describing itself as bullish on commodities as an asset class in 2018.

The investment bank said it was near-term bearish in gold due to a moderation of “fear,” which tends to lead to safe-haven buying of gold. The metal moved lower in recent weeks as speculators exited bullish position. Analysts said they do not think gold’s weakness is related to the dramatic rise in Bitcoin, describing gold and the cryptocurrency as “very different assets,” particularly since there has not been a corresponding exit from gold exchange-traded funds.

“Rather we see the decline in gold as evidence that ‘fear’ effects, which had been keeping gold supported, have at least partially moderated as U.S. tax reform and the transition to a new Fed chair appear to be going smoothly,” Goldman said.

Analysts later added: “We continue to expect gold prices will move lower over the coming months, reaching $1,200/toz by mid-2018.”

The main factors behind that near-term bearish view are an expectation for robust growth in gross domestic product in developed nations, further interest-rate hikes from the Fed, no deterioration in geopolitical risks and no recession in 2018-19. The bank listed forecasts of $1,225, $1,200 and $1,225 in three, six and 12 months, respectively.

“Over the long term, we continue to see strong EM [emerging-market] growth expanding gold demand, and the ‘wealth’ channel eventually dominating,” Goldman said. “We believe this will take prices back up to $1,375 by end-2020.”

Meanwhile, Goldman analysts look for silver to fare better than gold in 2018 after underperforming gold by 8% for the year to date. While calling for gold to weaken into mid-2018, Goldman looks for silver to be roughly flat over the next six months and increase over the next 12 months. The bank listed three-, six- and 12-month silver price forecasts of $16.20, $16, $17.20, respectively

“Typically, silver tends to outperform gold at the current stage of the business cycle, as it is more strongly levered to global growth given its significant industrial use,” Goldman said.

“However, this relationship broke down post-2011, as price induced thrifting and substitution led silver industrial demand to diverge from the global business cycle. Now we are finally beginning to see evidence of silver industrial demand picking up with strong global growth, as the impact of both thrifting and substitution appear to fade. Therefore, strong global growth should, in our view, lead silver to outperform gold, as it has in previous expansion phases.”

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.