Gold is Undervalued, Balanced Portfolios Should Own Some, Some Silver Too

Gold is Undervalued, Balanced Portfolios Should Own Some, Some Silver Too

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Goldie raises 12-month gold forecast by 11% to $2,000 oz; Silver’s 12-month forecast at $22 oz

Gold prices are likely to reach $2,000 oz in 12 months on the back of low real interest rates and concerns over currency debasement, even as developed markets emerge from C-19 coronavirus chaos lockdowns, lifting risk-on sentiment, according to a note Friday from Goldman Sachs.

Goldie raised its 12-month forecast on gold to $2,000 oz, from $1,800. It also lifted its 3 month view to $1,800 from $1,600 and its 6-month forecast to $1,900 from $1,650.

Gold investment demand tends to grow into the early stage of the economic recovery, driven by continued debasement concerns and lower real rates,” wrote analysts at Goldman Sachs. “Simultaneously, we see a material comeback from emerging market consumer demand boosted by easing of lockdowns and a weaker dollar.”

The analysts estimated that “fear” driven investment demand lifted gold by 18% this year, but the negative shock to “wealth” produced an 8% “drag.” They called the net effect at 10%, which coincides with gold’s YTD rise of 13%.

The most-active August gold contract GCQ20, +1.45% settled at $1,753 oz, up $21.90, or 1.3%, Friday and is +14% higher YTD.

The Goldman analysts expect strength in developing market investment demand to “persist even as economies recover, supported by fears of debasement and the higher level of economic uncertainty of the crisis.”

For gold prices to go materially above $2,000, inflation will need to move above the Fed’s 2% target and this move would need to be met with a muted policy response.

The analysts also raised their 12-month silver forecast by nearly 47% to $22 oz, from a prior forecast of $15. They said “coordinated global stimulus” will help generate global industrial production growth and economic activity. Silver is mostly an industrial metal.

As the economy recover and ‘fear’ based demand for gold moderates, we expect silver industrial demand to increase, giving up prices,” they said.

In Friday action, July silver SIN20, +1.81% rose 0.34, or 1.9%, to $17.847 oz, though the contract is down by more than 1% YTD

Have a healthy weekend, Keep the Faith!

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Paul Ebeling

Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he it the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.   

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