Investment bank Goldman Sachs has peered into its crystal ball once again this year to forecast another boost in gold prices – this time to US$2,000 per ounce within the next 12 months.
The analysts predict low real interest rates and currency debasement concerns will create the perfect storm for a price hike even as developed markets emerge from lockdowns associated with the coronavirus pandemic.
Debasement refers to a depreciation in the value of a currency, particularly one based on a precious metal such as gold, by introducing additional metal of a lesser value.
“Policy uncertainty aside, we believe debasement fears remain the key driver of gold prices in a post-crisis environment such as this,” the bank said in a note.
It added that a weaker dollar will boost the purchasing power of major gold consumers across emerging markets along with the easing of lockdowns.
The bank estimated “fear-driven” investment demand lifted gold by 18% this year, but the negative shock to “wealth” produced an 8% drag.
It pegged the net effect at 10%, coinciding with gold’s year-to-date rise of 13%.
On Friday, Goldman updated its three, six and 12-month gold price forecasts to U$1,800, US$1,900 and US$2,000/oz from US$1,600, US$1,650 and US$1,800/oz respectively, and maintained its long December 2020 gold trading recommendation.
It also revised silver forecasts to jump to US$19/oz in three months, US$21 in six months and US$22 in a year, compared to US$13.50, US$14 and US$15/oz previously.
Analysts expect developed-market demand to remain strong even as economies recover, supported by fears of debasement and a higher level of economic uncertainty following the crisis.
The bank predicted a combination of risk-on sentiment improving in developed markets as major economies lift lockdown measures and emerging markets likely taking longer to recover, could give cause to expect a correction in gold prices.
“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,” it said.
“Simultaneously, we see a material comeback from emerging market consumer demand boosted by easing of lockdowns and a weaker dollar,” the bank added.
For gold prices to go materially above US$2,000/oz, inflation will need to move above the 2% target set by the US Federal Reserve and will need to be met with a muted policy response, it said.
In February, Goldman said gold was at an “inflection point” and boosted its 12-month forecast by $200 to US$1,800/oz as coronavirus, depressed real rates and an increased focus on the US election continued to drive demand for the metal.
At the time of the boost, gold was trading at an almost seven-year high, supported by an increasing number of COVID-19 cases worldwide, which threatened to crush global economic activity.
Goldman said the metal had outperformed traditional haven currencies including the Japanese yen and Swiss franc as “the haven of last resort”.
Bank of America forecasts $3,000/oz price in 18 months
In March, Goldman head of commodities Jeffrey Currie viewed the precious metal as a hedge against currency debasement and said “now is the time to buy gold, the safe-haven asset, amid market panic over the impact of the growing coronavirus pandemic”.
The following month, analysts at Bank of America forecast gold to hit US$3,000/oz within 18 months in expectation that interest rates in the US and the rest of the world will “stay very low for a long time”.
“Beyond traditional gold supply and demand fundamentals, financial repression is back on an extraordinary scale,” the bank said.
“Rates in the US and most G10 economies will likely be at, or below, zero for a very long period of time as central banks attempt to push inflation back above their targets,” it added.
Spot gold prices, which were trading around US$1,730/oz on Friday, have surged 14% this year on the back of unprecedented stimulus measures by the world’s central banks as coronavirus flattened economies.