Gold: Downgrading price forecasts near term, longer term reiterate $1,250/oz – Goldman Sachs

Analysts at Goldman Sachs believe that Mr. Trump will pursue a pro-growth agenda, supporting a pickup in growth that was already underway and are downgrading their near term 3 and 6-mo gold price forecasts to $1,200/oz, from $1,280/oz (vs. spot $1,208/oz) (N.B. our 2017 forecast is now $1213/oz from $1261/oz previously).

Key Quotes

“While gold has already sold off sharply and real rates have risen substantially to reflect this thinking, we see the very near-term price risks as skewed to the downside, owing primarily to our concerns about the potential for physical ETF liquidation. Specifically, we estimate that the vast bulk of this year’s ETF build is losing money at current prices and that if half of this was unwound this would result in a c.$60/oz sell-off in the gold price.”

“Having said this, our base case medium to longer-term outlook towards gold is relatively agnostic since the outlook depends greatly on how the Fed responds to potential US stimulus and inflation as the economy reaches full employment. Were the Fed to be relatively dovish, this would see real rates remain low and be bullish for gold, while the opposite would be true if the Fed raised rates more quickly. Specifically, our economists expect US real rates to be broadly flat from current levels over the next 12 months.”

“At the same time, a number of other factors are likely to be supportive for gold, at the margin, over the medium to long term. Valuation levels for alternative asset classes such as equities and bonds remain highly elevated by historical standards, mine supply growth is likely to be weak over the next 12-24 months, and China’s RMB is set to depreciate further, to 7.3 by yearend 2017 on our FX team’s forecast, potentially supporting gold ETF purchases (especially in the context of a slowing growth in Chinese property prices). Overall, these considerations result in us leaving our 12-mo and 2018 price forecasts of $1,250/oz unchanged.”