Analysts at Goldman Sachs have raised their year-end target for gold prices to $2,700 an ounce from the previous level of $2,300 an ounce. This adjustment comes as central banks in emerging markets continue to accumulate real assets amid geopolitical risks.
Gold prices have surged more than 20% in the past two months, with the precious metal hitting a record of over $2,400 an ounce on Friday. The rally has been driven by new incremental factors, such as a significant acceleration in emerging-market central bank accumulation and Asian retail buying.
Nicholas Snowdon, an analyst at Goldman Sachs, suggests that forecasting gold prices now requires a new approach. Historically, higher interest rates typically drive greater demand for the U.S. dollar in relation to gold. However, the current rally is happening despite the possibility that the Federal Reserve may cut interest rates fewer times than previously expected.
Jonathan Rose, CEO of Genesis Gold Group, believes Goldman Sachs may not be bullish enough with the potential for gold ending the year at or near $3,000 per ounce.
“Everyone in the financial sector globally is very skittish right now due to the state of geopolitics,” he said. “The Middle East, Europe, and Asia are all in the midst of great strife. Add in the U.S. election and the potential for chaos and it’s clear why gold is rising.”
Snowdon argues that viewing gold as a barometer for fear and wealth is useful. Cyclical fear, such as during the 2000, 2008, and 2020 crises, is different from structural fear, where confidence in the dollar-backed international monetary system is challenged. The key difference between the two is the correlation of gold with real rates.
Four major developments could potentially curb the appetite for gold, according to Goldman Sachs:
- A decrease in central bank buying in emerging markets due to an easing of geopolitical tensions or the banks reaching their hard asset targets.
- A peaceful resolution to ongoing issues in the Middle East and Ukraine, and a settling in associated sanctions risk.
- China’s efforts to support its property sector, which could lead Chinese consumers to reduce their gold purchases.
- A hawkish tilt by the Federal Reserve to raise rates in its ongoing effort to curb inflation.
However, the report suggests that the near-term potential for a combination of these developments is low, which underpins their expectation for continued bullish momentum in the gold price.
Rose agrees.
“Central banks tend to get it right when it comes to covering their own assets even if it’s at the expense of the nations and people they supposedly serve,” he said. “Geopolitical turmoil will almost certainly continue for the foreseeable future which is why most long-term analyses favor gold, especially for backing retirement accounts.”
His company, Genesis Gold Group, specializes in helping Americans protect their wealth or retirement with Genesis Gold IRAs backed by physical precious metals. Reach out to them for a free, definitive gold guide.
