Goldman Sachs Sees Gold Prices At $1,450 By Next Year
(Kitco News)- Renewed growth in emergingmarkets (EM) will help drive gold prices higher, according to commodityanalysts from Goldman Sachs, who have significantly increased their forecastfor the yellow metal.
In a report Thursday, the globalinvestment bank said that in three months, it see gold prices pushing to $1,350an ounce, in six month rallying to $1,375, and by next year it sees gold pricesat $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 aresult of emerging-market gold demand, the precious metal has been able towithstand rising bond yields.
“The ‘normal’ relationship wouldsay that gold has to go lower as real rates rise, since as a non-yielding assetthere is less reason to hold gold in a higher rate environment. However, as EMgrowth has recovered, so has their gold demand, leading to an upwardlevel-shift in the equilibrium gold price,” the analysts said in the report.
“While stronger EM growth hasclearly 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 higheroil, 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 goldprices have pushed off a five-week low hit overnight as the market tested keysupport 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 notuncommon for the gold market to underperform other risk assets as investorscontinue deal with volatile equity markets. At the start of the week, the DowJones Industrial Average dropped 1,600 points intraday, it biggest pointdecline in history.
“We find that it usually takes amonth 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 againstsystematic risk,” the analysts said. “If a sell-off is brief, and can beattributed to technical factors (as our strategists believe is the case today),then gold reacts less vs. a deeper, longer and more fundamentally drivendecline with worsening fundamentals and macroeconomic outlook.”
Emerging Market Growth
Goldman analysts noted they seeemerging-market growth trending above 6% for the year, which means householdwealth will increase and consumers will have more money buy more gold.
The firm noted that the trend ofrenewed emerging-market gold demand started to develop in the fourth quarter asglobal jewelry demand totaled 650 tonnes, the fourth-strongest quarterlyperformance.
“This matters a lot for the level of overallgold demand, as jewelry is the single largest component of demand (greater than50%), while investment demand is typically only around 30% and ETFs are a tinyfraction of this,” the analsyts said.
By Neils ChristensenFor Kitco News
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