Goldman Sachs is searching for upside targets in gold
(Kitco News) - In a very different paper from the other recent Goldman Sachs gold note analyst Mikhail Sprogis who is the Vice-President of commodities research said the upside move in gold is only just beginning and reiterated his $2,000 an ounce price target.
Sprogis said "As a result of the liquidation, gold is now again pricing a Goldilocks scenario of moderate inflation and continued global recovery and is thus trading at a large discount to the current real rate. We estimate that the current gold price is consistent with a real rate of 0.1% vs. the -0.87% that is currently priced by the market. In our base case that the global recovery continues uninterrupted and inflation remains subdued, we expect this discount to persist and see just a modest upside to gold, driven by only a small increase in real rates and a continued improvement in EM wealth."
He added "Over the past several months, gold has been strongly correlated with the "inflation fear factor. Prices, therefore, corrected sharply after the hawkish Fed surprise which our economists interpret as the Fed taking a more backward-looking interpretation of average inflation targeting," said Sprogis. "This not only reversed the inflation trade but also removed the market's pricing of inflation tail risks."
Lastly, Sprogis noted "In a scenario where the global economic recovery does not play out as expected or inflation begins to move materially above expectations, we see material upside to gold given its undervaluation and low allocation from the investment community. Therefore, we think that gold may be a good strategic purchase here for portfolio managers looking to hedge against tail risks of macro volatility,"
It must be noted that this is a different department in the U.S. investment bank than the one that noted: "Gold is not the optimum store of value". This research came from the commodities department rather than the Consumer and Wealth Management division at the investment bank.