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Updated 10:42 16/06/19

Goldman Sachs: Fear will benefit gold

Liam Sheasby

By Liam Sheasby, News Editor

31 Oct 2018

Investment bankers Goldman Sachs believe that investor fears are benefitting gold, with increased demand and a sharp rise in the price per ounce of the precious metal. An internal report issued yesterday said: “In our view, it represents a rebound in fear-related demand for gold with ETFs beginning to build after several months of declines.”

The company’s publication goes against the latest report from Wells Fargo, a fellow US financial services firm, who believed that gold’s gains were purely because of market losses and wouldn’t last.

The renewed interest in gold comes at a time when the US stock markets are scrambling to recover after major corrections, with many investors unsure if the tech reliant stock exchanges can recover from such losses.

Gold is currently at £952.26 and $1,216.76 per ounce respectively, with gains of 4.14% in GBP and 2.07% in USD (the weaker Pound has seen greater gains on gold in the UK).

Goldman Sachs’ report states that bullion’s fundamentals are solid, predicting a rise to $1,250 by the end of 2018, $1,300 by the end of March 2019 (when Brexit is due to begin), and $1,350 by the end of September next year when US growth is expected to slow down.

The LBMA – London Bullion Market Association – is also forecasting a gold price rise, but their predictions see gold passing $1,500 within 12 months. It’s likely that Brexit has been factored into this, but it’s unknown whether their models expect the continued US/China trade war and to what extent they see central banks adding gold bullion to their reserves.

Worry is the key. The timing of equity losses has hit at a time when concerns over the trade war dragging on have begun to intensify, with investors wary of long-term trade disruptions beyond political flexing and negotiation tactics.

The Goldman report added: “While we think that the U.S. cycle still has room to run it doesn’t mean that markets will not worry about it coming to an end”

The US economy is burdened by rising interest rates, which are in turn making borrowing and repayments of loans more expensive. The problem is that this is a necessary evil from the Federal Reserve in order to contain inflation.

Despite this, JPMorgan Chase & Co. have increased their forecast for the likelihood of a recession within the next two years to greater than a 50-50 chance; a recessionary fear also felt in Europe by the Centre for Economics and Business Research.

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