Goldman Trims Gold Forecast But Sees Prices Rising
The updated three-, six- and 12-month forecasts average around $100 lower compared to the bank’s previous outlook as the gold market has been in a sharp downtrend since mid-April, although sideways in recent weeks.
Goldman described the recent investment environment as similar to the late 1990s, when a boom in technology stocks meant no fear in so-called risk markets in developed nations, while there was a financial crisis in emerging-market countries. Softening emerging-market economic growth and the strong U.S. dollar simultaneously hurt household savings in EM nations, a key metric for gold demand.
As gold prices fell, there was a significant decline in exchange-traded-fund demand in developed nations, which Goldman estimated was responsible for around $60 per ounce of the drop in gold prices since April. Softer physical gold demand, driven primarily by emerging-market nations, accounted for about $80 of the decline, the bank continued.
“There are already signs that gold fundamentals are starting to change with the dollar weakening over the past week, Chinese and Indian gold purchases rebounding, and Turkish CB [central-bank] holdings stabilizing,” Goldman said. “From here, we continue to expect gradually higher gold prices on the back of renewed EM demand. However, against this, we are already seeing a later-cycle U.S. economy with higher interest rates increasing the contango (negative carry) in gold.
“On net, while we continue to see a gradually higher price path for gold, we now forecast gold at $1,250/toz, $1,300/toz and $1,325/toz over the next three, six and 12 months (previously $1,350/toz, $1,375/toz and $1,450/toz).”