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Goldman Sachs Sees Higher Gold, Silver Prices, Neutral On Overall Commodities

Kitco News

(Kitco News) - Goldman Sachs is turning lukewarm on the general commodity index but the firm remains positive on gold and silver, increasing its forecast for the precious metal in its latest commodities report.

In a report published Monday, commodity analysts at Goldman Sachs raised their forecast by $25 across the board over the next three, six and 12 months. The analysts now see gold prices pushing to $1,350, $1,400 and $1,450 an ounce, respectively.

“The negative gold-real rates correlation has re-emerged, with the gold rally closely tracking the fall in real rates. In our view, this switch in the gold-rates correlation after the Fed pause reflects why this stage of the rate cycle is the sweet spot for gold,” the analysts said. “Higher rates can lead to more financial-market volatility and recession fears, boosting safe-haven demand for gold, while a rate cut boosts gold demand as it lowers opportunity cost of holding gold.”

Looking at silver, the investment bank raised its short-term and long-term forecasts up 25 cents. Analysts see silver prices rising during the next three, six and 12 months to $16.5, $17 and $17.5 an ounce, respectively.

Although silver’s industrial demand looks anemic going forward, Goldman Sachs is optimistic that silver will continue to rally in line with gold prices.

“At the same time, a high gold/silver price ratio should help incentivize investors to diversify some of their gold holdings into silver,” the analysts said.

The bullish sentiment comes at an important time for gold, which has been hit with a wave of selling pressure as investor optimism in equity markets has weighed on the yellow metal. Gold prices have dropped nearly 5% since hitting a 10-month higher last month. April gold futures last traded at $1,285.20 an ounce, down 0.18% on the day.

The silver market is defying gold’s weakness with the precious metal modestly up on the day. May silver futures last traded at $15.135 an ounce, up 0.20% on the day.

While Goldman is optimistic that gold prices will continue to push higher, analysts are not as optimistic on the overall commodity complex, saying that prices are no longer overvalued and need a new catalyst to push higher.

“From this point, positive returns will need to be justified by further evidence of improving fundamentals. The risk-reward of being outright long commodities is therefore less compelling now compared to a few months ago, and we recommend a neutral portfolio position in commodities,” the analysts said.

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