Goldman Sachs holds firm with gold price forecast of $ 2300 as inflation pressures intensify

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(Kitco News) – Opposing forces in the market will deliver little gold as the new year approaches; however, Goldman Sachs analysts maintain their bullish outlook until 2021.

In a report released Friday, the investment bank said it was maintaining its 2021 gold price target of $ 2,300 an ounce as the global economy balanced itself between positive news of potential vaccines against the COVID-19 virus and the short-term risks of further economic devastation. .

While Goldman Sachs economists expect a strong economic recovery in the United States and around the world, commodities analysts Jeffrey Currie and Mikhail Sprogis, the authors of the gold report, said there is still a “solid strategic argument in favor of gold”.

“In our view, the structural bull market for gold is not over and will pick up again next year with rising inflation expectations, the weakening US dollar and picking up demand from emerging markets.” , analysts said. “In the short term, however, it can be difficult for gold to generate significant momentum in a higher or lower direction.”

As for what will drive gold prices up next year, analysts said they continue to monitor real bond yields, which include inflation. Specifically, they said a decline in real five-year yields will continue to support gold.

“According to our economists forecast (assuming our bullish forecast for oil), real US short-term rates will average -2.1% over the next five years. The yield on the five-year peaks is currently -1.2%, which implies significant downside potential, ”analysts said.

Currie and Sprogis said they pay special attention to five-year bonds because it has the biggest impact on currency markets. As inflation increases, consumers can expect to see significant deterioration in global currencies.

“We believe the bulk of the gold purchases that have taken place this year have been made by investors who were more concerned about the real purchasing power of the dollar compared to the losses in their equity portfolios,” said they declared.

Goldman Sachs said it also sees a recovery in demand for gold from emerging markets in 2021.

“Chinese and Indian demand for gold is already showing signs of normalization. Chinese and Indian gold premiums are gradually increasing and are almost back to pre-Covid levels. Biden’s election victory and vaccine news should continue to push the currencies of emerging market consumers higher as tariff risks are lower, supporting their purchasing power, ”analysts said.