Precious Metals


Commodity analysts with Goldman Sachs are expecting growth from emerging markets to lift gold prices higher and have revised their forecasts.

Commodity analysts with Goldman Sachs (NYSE:GS) are expecting growth from emerging markets to lift gold prices higher and have revised their forecasts.

As of Thursday gold was trading at $1,319 but the bank sees it rising to $1,350 in three months time and $1,375 in six months. In 2019, Goldman Sachs estimates that gold will reach $1,450.  

In January, David Erfle of JuniorMinerJunky told the Investing News Network that he’s looking for gold to reach a monthly close above $1,375. “Once that happens, we’re technically in a bull market. Once that happens I think you’re gonna see large money coming into this sector finally.”

The bank’s forecast has been revised upwards from its previous forecast of $1,225, $1,200 and $1,225 respectively.

Analysts noted in Thursday’s report that emerging market growth has been the key driver and allowed gold to withstand rising bond yields.

Other factors pushing gold higher are “inflation breakevens thanks to higher oil, which have been offsetting much of the recent increases in nominal rates; and some potential for hedging demand in a choppy market environment.”

The bank’s comments come after the Dow Jones Industrial Average (INDEXDJX:.DJI) dropped over 1,500 points during trading on Monday and continued with an overall downward trend throughout the week. Gold has lost some ground falling from $1,323 on Tuesday to $1,320 on Thursday but analysts remain unfazed.

“We find that it usually takes a month 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 against systematic risk. If a sell-off is brief, and can be attributed to technical factors (as our strategists believe is the case today), then gold reacts less vs. a deeper, longer and more fundamentally driven decline with worsening fundamentals and macroeconomic outlook,” they said.

The analysts point to strong jewelry demand of 650 tonnes in Q4, 2017, which they explain, is the largest component of demand ahead of investment and ETFs. They note that growth in emerging markets is trending above 6 percent, which means household wealth will increase leaving consumers more money to purchase gold.

Goldman Sachs’ revised forecast follows a World Gold Council report revealing that gold demand fell 7 percent in 2017 compared to the previous year.

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Securities Disclosure: I, Melissa Shaw, hold no direct investment interest in any company mentioned in this article.


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