Date: March 24, 2023
By: Neils Christensen
The biggest banking crisis since 2008 has created a surge in safe-haven demand for gold and Goldman Sachs is looking for prices to remain above $2,000 an ounce 12 months from now.
Wednesday, commodity analysts at Goldman Sachs updated their 12-month gold forecast, saying that they see prices rallying to $2,050 an ounce, up from their previous one-year target of $1,950 an ounce. At the same time, the investment bank reiterated its bullish outlook for the commodity sector, seeing a broad-based gain of 28%.
The bullish outlook for gold comes as the precious metal sees some profit-taking heading into the weekend after retesting resistance at $2,000 an ounce. April gold futures last traded at $1980.20 an ounce, relatively flat from last week.
Looking past the short-term technical selling, the analysts noted that gold remains the best safe-haven hedge against financial risks. They also added that an end to the Federal Reserve’s tightening cycle, leading to a weaker U.S. dollar, will continue supporting the precious metal.
According to Goldman Sachs, investors will once again start moving capital into gold-backed exchange-traded products.
“We believe the market will be well supported not only by ETF inflows once Fed fund rates have peaked but by a stronger ‘Wealth’ effect from the East as the USD depreciates into year-end on yield compression and EM GDP grows strongly on China reopening effects,” the bank said in the note.
Since the start of the banking crisis two weeks ago with the collapse of two major regional U.S. banks, about 24 tonnes of gold has flowed into the world’s biggest gold ETF, SPDR Gold Shares (NYSE: GLD).
According to data from the World Gold Council, global gold ETFs saw inflows of 18 tonnes in the first few days of the banking crisis, ending ten consecutive weeks of outflows.
Although gold is expected to grind higher from current levels, Goldman analysts said it would take a significant shift in the Federal Reserve’s monetary policy to push prices above $2,100 an ounce.
Goldman Sachs economists are not expecting the Federal Reserve to cut interest rates this year, in line with comments from the head of the central bank Jerome Powell.
However, market expectations paint a different picture. According to the CME FedWatch Tool, the market is pricing in a rate cut by June and sees the potential for four rate cuts before the end of the year.