Goldman Sachs Remains Overweight Commodities And Still Sees Gold At $1,450
(Kitco News) - Despite gold's recent lackluster performance, Goldman Sachs continues to see prices rising over the next year as demand in China and other emerging-market nations recovers.
In a report, Thursday Goldman reiterated its forecast forthe precious metal to rise to $1,450 by 2019. The comments come as gold hoversaround last week’s 12-month low; August gold futures last traded at $1,226.30an ounce.
The gold forecast was included in a report on the broadcommodities sector, with Goldman favoring an “overweight” rating in commoditiesand looking for a 10% return over the next 12 months
Recent weakness in gold occurred as the market priced inChinese risk, not the risk from U.S. policies, Goldman said. On the one hand,the sell-off seems “counter-intuitive” since the metal “historically acted as ahedge for policy uncertainty and downside global growth risks - the exact fearswhich are now on the rise,” Goldman said.
However, analysts pointed out that gold also fell a coupleof decades ago during the Asian financial crisis, losing some $250 an ounce.
Based on real U.S. interest rates, “fear” in developedmarkets appears to be declining despite rising U.S. policy risks, Goldman said.“We believe that is because the policy is now mostly aimed at foreign markets,”the bank continued.
Meanwhile, wealth in emerging markets has diminished like itdid in 1998-99, as measured by the U.S. dollar, Goldman said. A muscular dollarnormally indicates that wealth generation outside of the U.S. is weak,particularly in China, where domestic assets and the country’s currency havefallen, Goldman continued.
“The reason gold doesn’t go higher in USD is that theChinese retail consumer still dominates the Chinese investor, where demandlikely remains strong,” Goldman said. “Accordingly, a return to a macrobackdrop of renewed EM growth and a gradual reversal of EM FX [foreignexchange] keeps us bullish gold through the EM wealth channel.
“Our China team is confident that market concerns about asharp slowdown in growth momentum should ease, and see USD/CNY returning to6.40 over the next 12 months, consistent with our 12-month gold target of[$1450/toz].”By Allen Sykora of Kitco News; asykora@kitco.com
By Allen SykoraFor Kitco News
Follow @AllenSykora
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