Goldman: Gold to $2300

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Gold is the currency of last resort

Finally, markets are also growing increasingly concerned about a possible return of inflation now that the initial deflationary shock from the pandemic has passed. Beyond the already massive debt build-ups around the world, we see risks of politically-driven inflationary policies to address rising social needs. Such policies would support commodity consumption while commodities’ history as an effective inflation hedge would lead investors to rotate into them—particularly gold. Gold prices are driven by two primary factors: fear—which drives up investment demand in Developed Markets—and wealth—which fuels consumer demand in Emerging Markets. Both factors are set to support gold prices in the coming years as the Dollar weakens. Our strategists expect that expansionary fiscal and monetary policy in DM economies will continue to drive real rates and the Dollar lower, creating demand among DM investors for inflation hedges such as gold. We further expect EM consumer demand for gold to return next year as incomes rise, boosted by local currency appreciation. In fact, higher oil prices and a weaker Dollar would likely both accelerate the accumulation of gold by EM central banks too. Ultimately, gold is “the currency of last resort” in environments like the current one, in which governments are debasing their fiat currencies and pushing real interest rates to all-time lows. These actions are set to create demand for gold as a hedge against the loss of Dollar purchasing power, leaving risks to our $2,300/toz 12-mo price forecast skewed to the upside.

Yawn to inflation as Republicans trash Biden spending in the senate. But that means an easier Fed and downside pressure DXY so gold wins on deflation.

Right for the wrong reason. I also expect AUD appreciation to be relatively contained as China slows, iron ore falls, we underperform other developed markets on no immigration and Chinese decoupling.

So that’s a double tailwind for local gold miners.

David Llewellyn-Smith
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Comments

    • Popcod

      IKR? I was looking forward to a nice day of my wealth going up by more than I earn a week actually doing some work (and this is why I did not, and will not sell out of the market). I want to know if they got hacked.

      • Popcod

        I’ve got some base metals in my miners so I’m exposed to that area of things as well. I think the further electrification of the world will be a big trend going forward, plus with the materials bear market for some of the metals there has been an under investment in exploration and development so there could be a bit of a supply side price shock that would be nice to pick up on. However I need to do a bit more research before shooting my mouth off on specifics

    • Popcod

      I have listened to, and read, so much economic info this year and I just can’t make my mind up about inflation/deflation. I think it might be some weird mix of the two (as it obviously has been over recent decades). There’s Jeff Booth’s price of tomorrow tech deflation impulse that I think will continue to pick up speed coupled with the coming energy super abundance from renewables combined with ‘printing’ (or an increase in bank reserves, which isn’t money until it leaves the fed balance sheet and while that is happening more than in the aftermath of the GFC it still seems to be happening at a glacial pace, but with more fiscal hole plugging aimed at main street compared to the GFC it could actually be inflationary this time, at some stage) it is so difficult to try and figure out which force will prevail. Luckily when I did all my research into PMs back in 2011/12 I read enough to understand that gold performs well in periods of inflation and most types of deflation, so while the logic behind that has sometimes confused me I’ve held on and added to my stash and I’m comfortable to continue to do so.

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