Goldman Sachs sees gold soaring 9% in 2020 as Trump's trade-war and recession fears grip investors

gold bars

Reuters / Pascal Lauener

  • The price of gold could jump 9% to $1,600 per ounce by the end of March, according to Goldman Sachs.
  • Goldman analysts highlighted political uncertainty, recession fears, emerging-market growth, central banks' gold buying, greater discussion of Modern Monetary Theory, and other factors underpinning a higher gold price.
  • "We still see upside in gold as late cycle concerns and heightened political uncertainty will likely support investment demand for gold as a defensive asset," the analysts said.
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The price of gold could jump 9% to $1,600 per ounce by the end of March, according to Goldman Sachs.

The investment bank stood by its three-month, six-month, and 12-month forecasts in a research note last week. It highlighted as factors underpinning the price: political uncertainty, recession fears, high household savings, low interest rates, an equities selloff, growth of emerging markets, moderate growth in mine output, robust central-bank purchases, and greater discussion of Modern Monetary Theory, among others.

Goldman's analysts said they "remain optimistic" about gold going into 2020, given investors view it as a safe or "haven" asset during turbulent times.

"We still see upside in gold as late cycle concerns and heightened political uncertainty will likely support investment demand for gold as a defensive asset."

These are Goldman's 10 key reasons to expect a higher gold price:

  • Political uncertainty due to the US-China trade war and other trade disputes, next year's US elections, protests in Hong Kong and elsewhere, and rising concerns about inequality and support for wealth redistribution.
  • Recession fears due to record-low US unemployment and an inverted yield curve - a reliable indicator of an upcoming recession.
  • Greater household savings in developed countries - coupled with lower global investment - has resulted in a savings glut, leaving more people with spare cash to spend on gold.
  • Rock-bottom and even negative interest rates could limit the scope for bonds to appreciate, making gold more attractive as it might decouple from rates and outperform them during the next recession.
  • Stocks are likely to fall next year due to political uncertainty and weaker consumer confidence. Gold could benefit as it's a common hedge for investors and negatively correlated to equities over time.
  • Increased wealth could fuel demand for gold in jewelry, industry, and investment. Goldman's economists expect emerging-market economies, which account for the bulk of global gold purchases, to grow by an average of 7.8% annually until 2024.
  • Annual mine output is set to grow just 2% annually in the next few years due to limited capital spending.
  • The "wealth effect" of GDP growth in emerging markets, offset by yearly growth in mine output, could drive the price of gold up 4.6% annually in the coming years, Goldman estimated.
  • Central banks are on track to buy a record 750 tonnes of gold this year, and could buy another 650 tonnes next year, supporting a higher gold price.
  • More widespread discussion of Modern Monetary Theory (MMT), which calls for governments to run larger fiscal deficits, could fan fears of currency devaluation and increase demand for gold.

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