Goldman Sachs expects gold price to rise to $1,800

Goldman Sachs still expects the gold price to rise to a new price within a year. $1,800 per troy ounce will rise. Potentially, the precious metal could reach a price of $2,000 per troy ounce if inflation increases faster than expected. The bank writes this in a new update for customers this week. Analysts at Goldman Sachs see parallels with the situation in 2009, when the gold price stabilized for some time around $950 per troy ounce. This was followed by a strong rally, with the share price almost doubling in two years.

In the last two months, too, the Gold price after the highly volatile period of February and March. Then the gold price fell just as hard, because investors sold everything in a flight to liquidity. After that, the price recovered quickly, before stabilizing around $1,700 per troy ounce. According to Goldman Sachs analysts, this is where the comparison with 2009 comes in, when stock prices recovered and the price of the precious metal stabilized. From the report:

"The situation is similar to that of the first half of 2009, when, despite the ongoing economic recovery and higher stock prices, gold and real prices remained within the range as the Fed maintained a very loose monetary policy. Finally, in the third quarter of 2009, the gold price broke out in line with the decline in real interest rates, as inflation expectations rose faster than nominal interest rates.

We believe that a similar dynamic may occur today. The pricing of inflation expectations could be the catalyst for a rise in the price of gold. All told, we expect gold to weather this cyclical rotation and reach $1,800 per troy ounce within twelve months."

Inflation expectations

Earlier this year, Goldman Sachs gave a price target of $1,800 for gold. Now the bank also sees potential for a further rise to $2,000 per troy ounce. If inflation rises further, this could give a boost to the gold price. To date, we have not seen any signs of rising inflation, as consumers postpone large purchases and save more. Central banks also fear that lending will decline, putting pressure on prices. From the report:

"While the Fed maintains a bipartisan mandate for inflation, from 2009-2011 it has been willing to tolerate inflation above target in the short term. This is to promote the recovery of the labour market. Such a cyclical disruption between break-even inflation and nominal interest rates could further lower real interest rates and push gold prices higher."

This contribution was made from Geotrendlines