Goldman Sachs predicts a bright and shiny future for gold
The firm’s commodities analysts say gold is to rise 10% and hit $3,000 by next year.
Goldman Sachs reiterated their view that demand from global central banks leery of storing their national wealth mostly in dollars should help drive the price of gold up another 10% to $3,000 per troy ounce by the end of 2025.
In a note published over the weekend, the firm’s commodities analysts wrote, “Central bank demand has increased fivefold since the freezing of Russia’s central bank assets, on fears about financial sanctions and US sovereign debt sustainability.”
The US and its allies took the unprecedented step of freezing hundreds of billions of dollars’ worth of assets — including a lot of US government bonds — owned by the Russian central bank after Russia invaded Ukraine.
This was a big deal. For decades, central banks around the world, even in adversarial nations like China and Russia, have viewed US government bonds as pretty much the safest and most efficient place to store their national reserves.
That willingness reflected confidence that US rules and laws, and its track record as a debtor, would ensure they’d be repaid, as well as faith that the US government was well run enough to not cause runaway inflation (which would reduce the value of the investments those central banks own).
But a lot has changed over the last few years. Covid caused the largest upsurge in inflation since the early 1980s. Then Russia started the largest land war in Europe since 1945, prompting the West to impose the freeze on Russia’s assets.
Now, the US has reelected Donald Trump, an unpredictable presence whose domestic policies are expected to make big US budget deficits even bigger and more inflationary. Additionally, Trump’s willingness to meddle with the independent Federal Reserve may erode some of the confidence that made countries happy to keep their money locked up in US government bonds.
“Losses in central bank credibility (e.g. political Fed interference) can boost inflation and erode the value of nominal assets, against which real commodity assets and especially gold offer wealth preservation,” Goldman analysts wrote.
Interestingly, the torrid run for gold prices this year have done little for the shares of Denver-based Newmont Corp., the world’s largest gold miner. The stock, which was up 40% at one point this year, has plunged in price since it reported lackluster production numbers in October. The SPDR Gold Shares ETF, on the other hand, is slightly outpacing the overall gold price, up 26% so far this year.
