Goldman Sachs raised their price forecast for gold on Monday night in a note to customers. $GS added Modern Monetary Theory to higher ETF inflows, Geopolitical risk, stronger emerging markets, weaker U.S. dollar and negative real interest rates in Europe as reasons.
Goldman Sachs raised their price forecast for gold again on Monday night in a note to customers. $GS added Modern Monetary Theory to higher ETF inflows, Geopolitical risk, stronger emerging markets, weaker U.S. dollar and negative real interest rates in Europe as reasons.
Goldman Sachs New Gold Forecasts Raised up by 8.5% to $1600 per ounce
Goldman added two new reasons in this note from the lsst, growing discussion over Modern Monetary Theory (MMT) and the 2020 U.S. elections. MMT is a theory which says debt and deficits don’t matter so long as inflation remains low. MMT proponents, primarily on the political left, say governments should use low rates to spend on infrastructure and social programs to boost growth and reduce inequality.
“In the next recession, our US economists do not expect governments to adopt direct monetary financing and expect inflation to remain firmly anchored,” Mikhail Sprogis, precious metals analyst at Goldman, said in a research note. “But this doesn’t necessarily prevent an increase in debasement concerns if conversations around MMT become more widespread — a potential boost to demand for gold as a debasement hedge.”
However Goldman strategists say they don’t expect MMT to be implemented on a wide level, they do think simply chatter can cause worry about currency debasement and rampant inflation, both historically strong backdrops for gold.
2020 US Election
Goldman analysts cited the 2020 election, which could see substantial market turbulence as Americans weigh President Donald Trump against his Democratic rival. The “partisan impeachment” has heighten the split in US politics even further than imagined.
“High political uncertainty due to continued trade tensions and the approaching US elections should also be supportive gold in 2020,” Sprogis wrote. “This uncertainty may be one of the reasons why we see evidence of a non-ETF vaulted gold build, as high net worth individuals may want to store gold outside the financial system.”
Chart via Knovawave
Goldman Sachs Rationale
- Low and falling US unemployment rate expected to keep late-cycle worries elevated which is supportive of ETF inflows
- Low European growth with negative real rates likely to further boost European ETF purchases
- Elevated geopolitical tensions
- Lower pressure on emerging currencies should help keep central bank gold purchases at same level as 2018
- Weaker US dollar
- Acceleration in GDP growth are expected to boost emerging market U.S. dollar purchasing power and flow on gold demand
Source: Goldman Sachs
From The TradersCommunity News Desk