Goldman Sachs hiked its gold forecast Friday, calling for the metal to hit $2,000 an ounce in a year due low real interest rates, a weaker U.S. dollar and investor worries about currency debasement in the aftermath of the COVID-19 crisis.
Gold rallied in late March but has had trouble generating further upward momentum since then in a market with offsetting influences, Goldman said. The metal has been held back by what Goldman calls a “wealth shock” to consumers in emerging-market nations and an abatement in central-bank demand. Indian gold imports plunged in April and May, while Russia’s central bank has not bought gold since the collapse in oil prices. However, “fear” about the financial and economic landscape prompted “unprecedented” demand among investors in developed nations, with the volume of gold held by exchange-traded funds up 20% so far in 2020 compared to the same period in 2019, Goldman said.
“Such an unstable environment has raised concerns that, as risk-on sentiment improves with DM economies emerging from lockdown, the pace of DM investment demand will moderate due to less ‘fear,’ while EM ‘wealth’ demand will take longer to recover — creating room for a correction in gold prices,” Goldman said. “However, as we have argued in the past, gold investment demand tends to grow into the early stage of the economic recovery, driven by continued debasement concerns and lower real rates. Simultaneously we see a material comeback from EM consumer demand boosted by easing of lockdowns and a weaker dollar.”
As a result, analysts said, they hiked their three-, six and 12-month gold forecasts to $1,800, $1,900 and $2,000 an ounce from $1,600, $1,650 and $1,800 previously. Goldman revised its silver forecasts up to $19 in three months, $21 in six months and $22 in a year, compared to $13.50, $14 and $15 previously.
Goldman estimated that gold-investment demand driven by “fear” in developed markets has risen by 18% this year, while the negative shock to “wealth” has produced an 8% drag. Therefore, a net change of 10 percentage points is in line with gold’s 13% increase in prices so far this year.