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Goldman Sachs raised their price forecast for gold on Friday in a note to customers on Coronavirus fear. $GS had previously cited Modern Monetary Theory to higher ETF inflows, Geopolitical risk, stronger emerging markets, weaker U.S. dollar and negative real interest rates in Europe

Gold and Silver

Goldman Sachs issued a research note wrote that gold prices could top $1,850 an ounce in the near term if the outbreak of COVID-19 can’t be contained by the second quarter

The analysts say the virus has claimed more than 2,200 lives and sickened 76,767 people, according to the World Health Organization’s latest tally, has more room to run “depending on the magnitude of the monetary policy response.”

Gold for April delivery GCJ20 added $28.30, or nearly 1.8%, to settle at $1,648.80 an ounce on Comex. The metal saw a weekly gain of 3.9%, which marked the sharpest weekly rally for a most-active contract since the week ended June 21, according to FactSet data.

The 30-year bond yield +0.00% slipped 6.4 basis points to 1.9066%, falling below its previous all-time low of 1.95%. Traders are chasing gold equities and physical gold. Investors have been worried that the disease could hamstring Asian economies, considered linchpins for industries like semiconductors and automobiles, and fuel a global economic slowdown.

 In other metals trading Friday, March silver SIH20,rose 21.1 cents, or nearly 1.2%, to $18.53 an ounce, with a weekly gain of 4.5%, which was its sharpest weekly rise since August.

March copper added 0.8% to $2.608 a pound, for a weekly rise of 0.3%. April platinum PLJ20,shed 0.3% to $976.10 an ounce, for a weekly rise of nearly 0.8%.

Recap: 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.”

MW Gold W 12 6 19

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

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