Goldman Sachs expects gold to break out of its narrow trading range and soar through 2021 as the coronavirus recession gives way to higher inflation.
Bullion has hovered around $1,900 per ounce after its summer rally to record highs fizzled out in August. US election uncertainty fueled a brief rally, but new hope for a virus vaccine pushed investors out of safe havens and into riskier assets. In the near term, gold doesn’t have a clear catalyst to lift or drag on prices, analysts Mikhail Sprogis and Jeffrey Currie said.
- Gold prices will break out of a tight trading range in 2021 as inflation worries stoke demand, Goldman Sachs analysts said in a note.
- The bank holds a $2,300-per-ounce price target for the precious metal, implying a 22% rally from current levels over the next 12 months.
- Though gold typically falls when long-term interest rates rise, the financial crisis disrupted the pattern and saw gold rise through 2012 as investors feared for strong inflation.
- Goldman expects a similar trend to materialize next year as recovery from the coronavirus recession fuels higher price growth.
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Yet the precious metal is poised to break out in 2021 as inflation concerns take center stage, they added. Goldman holds a $2,300-per-ounce price target for gold, implying a 22% rally from current levels over the next 12 months. Such a bounce would also place bullion at an all-time high.
Gold prices typically fall when interest rates climb, but the 2008 recession showed the market focusing more on short-term rates. Even as longer-term rates moved higher, gold rose in the wake of the financial crisis as concerns around policy-fueled inflation lifted demand.
The metal will follow the same path next year, Goldman’s analysts said. The Federal Reserve has indicated it will allow for a temporary overshoot of its 2% inflation target after a prolonged bout of weak price growth. Goldman’s economics team sees inflation rising to 3% before weakening through year-end.
“This may well lead to market participant concerns over the long-term inflation rate and more inflows to gold in order to hedge it,” the bank’s analysts said. Expectations for a weaker dollar also support a disconnect between gold prices and long-term rates, the team added.
Goldman also expects demand for gold to strengthen across emerging markets. Chinese and Indian gold demand “already displays signs of normalization,” and the likelihood of a Biden administration taking a softer stance on trade policy should further support the rally.
Gold traded at $1,888.87 per ounce as of 11 a.m. ET Tuesday, up roughly 25% year-to-date.
Markets Insider – Ben Winck – Nov. 17, 2020, 06:09 PM