Gold: Geopolitical risks to support prices – Goldman Sachs

The analysis team at Goldman Sachs suggests that the geopolitical risks should support gold prices, counter-balancing stronger growth and higher rates.

Key Quotes

“Gold has historically been the commodity most exposed to geopolitical risks (it acts as both a safe haven, and a hedge against debasement risk). The recent period of heightened uncertainty has been no exception to this trend, with gold up more than 10% YTD.”

“Following the results of the first round of the French presidential election on Sunday, which saw Mr. Macron and Ms. Le Pen advance to the next round, gold has sold off by $17/oz. As Max Layton has argued, we continue to expect prices to move lower, towards our $1,200/toz forecast. The key catalysts we see for this move will be markets repricing to reflect higher US rates, a faster Fed balance sheet normalization, increased expectations of US tax reform (cuts), and stronger growth (as the hard data catch up to the surveys). However, we also note that prices could remain volatile as significant political uncertainties remain, including the prospect of a US government shutdown (more likely if the current budget debate extends into May) and increased military tensions in North Korea.”

“Ultimately, we remain agnostic on gold over a 12-month horizon. While we see stronger growth, exactly how the Fed responds to this environment (i.e., the path of real interest rates), as well as how geopolitical risks will evolve, remain uncertain.”