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Goldman Sachs says gold will surge another 20% and hit $2,300 in the next year, driven by rock-bottom interest rates

Business Insider logo Business Insider 7/28/2020 snagarajan@businessinsider.com (Shalini Nagarajan)
Gold bars are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich March 3, 2014. REUTERS/Michael Dalder © REUTERS/Michael Dalder Gold bars are stacked in the safe deposit boxes room of the Pro Aurum gold house in Munich March 3, 2014. REUTERS/Michael Dalder
  • Goldman Sachs has raised its 12-month gold forecast by 15% and now expects the metal to hit $2,300 per ounce.
  • The bank previously projected that the safe-haven metal would touch $2,000 an ounce in the next 12 months. It is currently trading above $1,900, and on Monday, hit a record high.
  • A $2,300 projection would be a 20% jump from gold's current price levels.
  • Analysts at the bank also lifted the 12-month forecast for silver by 36% to $30 per ounce.
  • The increased forecasts are driven by rising fears about the dollar's long term future as the world's key reserve currency, and expectations of continued rock-bottom interest rates.
  • Visit Business Insider's homepage for more stories.

Goldman Sachs expects gold to jump almost 20% from its already record level to reach $2,300 in the next 12 months on rising concerns over the US dollar's global standing as a reserve currency. 

Analysts at the bank continue to think that gold has plenty of room to run against a backdrop of rising geopolitical tensions, elevated political and social uncertainty in the US, and a swelling COVID-19 second wave.

"With more downside expected in US real interest rates, we are once again reiterating our long gold recommendation from March and are raising our 12-month gold and silver price forecasts to $2300/toz and $30/toz respectively from $2000/toz and $22/toz," analysts from the bank said.

"Combined with a record level of debt accumulation by the US government, real concerns around the longevity of the US dollar as a reserve currency have started to emerge," analysts said in a note dated July 28.

In the note, Goldman increased its forecast for gold's price in the next year from $2,000 to $2,300, an increase of 15%.

While reaffirming that Goldman has "long maintained gold is the currency of last resort," the bank also raised its 12-month silver forecast by 36% to $30 per ounce. Previously, Goldman had predicted silver would hit $22 per ounce over the next 12 months.

Hitting $30 per ounce would represent an increase of around 28% from silver's current price.

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Continuous streams of stimulus and measures taken by policymakers to fight the economic downturn caused by pandemic will lead to a significant rise in debt in the future, Goldman said. This in turn will lead to policymakers allowing inflation to rise, boosting precious metal prices, the bank said.

"The resulting expanded balance sheets and vast money creation spurs debasement fears which, in turn, create a greater likelihood that at some time in the future, after economic activity has normalized, there will be incentives for central banks and governments to allow inflation to drift higher to reduce the accumulated debt burden," analysts wrote.

One fund manager added further testimony to current investor behaviour towards gold.

"Some investors are also clearly concerned about the long term impact of the actions of central banks," said Adrian Lowcock, head of personal investing at Willis Owen.

"If central banks can just digitally create money out of thin air, then it could easily undermine the fiat money system, potentially devaluing currencies or worse. Gold would look very attractive in that scenario."

On Monday, gold hit $1,940 per ounce, its highest level ever, while on Tuesday, silver rose as much as 5.7% to $26 per ounce, although it slid as the day progressed.

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