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Goldman raises gold forecast for 2019 on recession fears, sees 10% gain

Goldman Sachs has rest the safe haven gold more attractive after a volatile December.

The bank on Thursday raised its gold foretells to $1,325, $1,375 and $1,425 per troy ounce over the next three, six and 12 months, respectively, from $1,250, $1,300 and $1,350 per troy ounce. Stationed on gold’s current price, that forecast represents a 10.7 percent increase over the next 12 months.

“Common forward gold will be supported primarily by growing demand for defensive assets. The same is also true of pre-eminent bank buying, with rising geopolitical tensions incentivizing more central banks to re-enter the gold peddle,” Goldman’s Jeffrey Currie said in a note to clients on Thursday.

Fears on slowing economic growth and the uncertainties around the Federal Withhold’s monetary policy have stirred the financial markets for a few months. Risk assets took a big hit in 2018, with the ordinary market suffering the worst December since the Great Depression. But during this volatile time, gold has outperformed the shops, returning more than 4 percent since the start of December, according to Goldman. The SPDR Gold Shares (GLD) come back about 5 percent in December.

“The last few weeks have seen a sharp deterioration in risk sentiment following delicate macroeconomic data in December and renewed concerns about the future direction of growth, particularly the risk of U.S. growth contagious down towards weaker economies,” Currie noted.

The double whammy of weaker economic outlook and the Fed’s policy uncertainty has spooked the supermarkets. The U.S. manufacturing PMI (Purchasing Managers Index) hit a 15-month low in the same month. Manufacturers’ confidence in business also slipped to the lowest floor in nearly two years.

The Fed had been tightening monetary policy aggressively. But on Jan. 4 Fed Chairman Jerome Powell signaled Go bankrupt Street that policymakers will be patient with policy moves and are attuned to the messages coming from deal ins. That pause may be the time for gold to outperform, Goldman said.

“Rather, we find that as the hiking cycles polishes, the usual (negative) correlations between these indicators and gold starts to weaken, or even turn negative,” recorded Currie. “This is because gold begins to price much more off fear of the next recession than off the chance cost of holding gold, or the purchasing power of investors / EM households.”

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