Goldman Sachs Sees Gold Prices At $1,450 By Next Year
(Kitco News) - Renewed growth in emerging markets (EM) will help drive gold prices higher, according to commodity analysts from Goldman Sachs, who have significantly increased their forecast for the yellow metal.
In a report Thursday, the global investment bank said that in three months, it see gold prices pushing to $1,350 an ounce, in six month rallying to $1,375, and by next year it sees gold prices at $1,450 an ounce. The revisions are up from the bank’s previous forecasts of $1,225, $1,200 and $1,225, respectively.
The analysts noted that as a result of emerging-market gold demand, the precious metal has been able to withstand rising bond yields.
“The ‘normal’ relationship would say that gold has to go lower as real rates rise, since as a non-yielding asset there is less reason to hold gold in a higher rate environment. However, as EM growth has recovered, so has their gold demand, leading to an upward level-shift in the equilibrium gold price,” the analysts said in the report.
“While stronger EM growth has clearly been the key driver, we also now see upward pressure on gold from: stronger EM FX (vs. a weaker USD); higher inflation breakevens thanks to higher oil, which have been offsetting much of the recent increases in nominal rates; and some potential for hedging demand in a choppy market environment.”
Goldman’s comments come as gold prices have pushed off a five-week low hit overnight as the market tested key support just above $1,300 an ounce. Comex April gold futures last traded at $1,316.60 an ounce, up 0.15% on the day.
The analysts noted that it is not uncommon for the gold market to underperform other risk assets as investors continue deal with volatile equity markets. At the start of the week, the Dow Jones Industrial Average dropped 1,600 points intraday, it biggest point decline in history.
“We find that it usually takes a month or so of equity market drawdown for gold to start to act like a hedge. The most likely reason for this is that gold is primarily a hedge against systematic risk,” the analysts said. “If a sell-off is brief, and can be attributed to technical factors (as our strategists believe is the case today), then gold reacts less vs. a deeper, longer and more fundamentally driven decline with worsening fundamentals and macroeconomic outlook.”
Emerging Market Growth
Goldman analysts noted they see emerging-market growth trending above 6% for the year, which means household wealth will increase and consumers will have more money buy more gold.
The firm noted that the trend of renewed emerging-market gold demand started to develop in the fourth quarter as global jewelry demand totaled 650 tonnes, the fourth-strongest quarterly performance.
“This matters a lot for the level of overall gold demand, as jewelry is the single largest component of demand (greater than 50%), while investment demand is typically only around 30% and ETFs are a tiny fraction of this,” the analsyts said.