Goldman Sachs is not ready to give up gold even after a gloomy 2021. The financial giant of investment banking services raises the price forecast and recommends a year-long gold deal.
In its report, the bank says it is raising its 12-month forecast for gold's price to $2,150 per ounce compared to the previous target of $2,000.
The new bullish prospect emerges after a disappointing 2021 for gold, when prices were down by almost 4% at the end of the year. According to Goldman Sachs, last year's decline in gold prices was due to strong economic activity and expectations that inflation growth will be temporary.
It is noteworthy that high growth rates and stable prices led to the growth of all risky assets, in particular cryptocurrencies. As a result, gold has not only faced a drop in investment demand from investors who are no longer looking for depreciation hedges but has also faced direct competition from Bitcoin as a means of saving.
Goldman Sachs predicts that most of last year's trends will change this year.
Today, the global mix of growth and inflation is markedly different. Despite the fact that a recession is not being discussed yet, economists are forecasting a significant slowdown in the US, while the imminent prospect of a new cycle means that there will be no risk in long-term asset classes around the world. For those investors who want to hedge their portfolios against the risks of slowing growth and falling value, just a long position on gold is the most profitable under the current macroeconomic conditions. This is also mentioned in the report.
Analysts noted that the growing risk is that persistently higher inflation will force the Fed to aggressively tighten its monetary policy, which in turn, will further influence the economic growth. Goldman Sachs has already cut its growth forecasts for the US as the US government is unlikely to advance its fiscal stimulus plans.
The growing threat of inflation is another factor that Goldman Sachs is monitoring. Inflation concerns were kept under control last year as the US central bank dismissed rising consumer prices as temporary. However, the investment bank said there is now a risk that inflation expectations will become unfounded as inflation has been more stable than expected.
Goldman Sachs said that based on gold's historical inflation ratio, if inflation moves to 4%, gold could hit $2,500 an ounce. Moreover, the bank believes that if US gold ETFs return to their 2011 levels, gold will approach this high level. Accordingly, gold has great upside potential in 2022.
Goldman Sachs' latest comments on gold were released before the Fed's January monetary policy meeting.
