Rising gold prices indicate that investors are seeking shelter in the yellow metal from the stock market’s gyrations, and that trend will continue for a while, according to Goldman Sachs.
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The bank’s bullish view on gold is driven by faster inﬂation, rising wealth in emerging markets and the increased risk of an equity correction. Goldman added that it expects four rate hikes in 2018, compared with the market’s projection of three, but the bank said gold should outperform in either scenario
As previously reported by FOX Business, gold surged last week to its highest price since mid-February. The metal is considered a safe-haven asset that attracts investors in times of economic or political uncertainty. The rally in gold accelerated Friday as stocks were hammered. On Monday, gold added to its gains even as stocks rebounded.
Gold got a boost Friday as investors remained concerned about a potential trade war between the U.S. and China. When President Donald Trump announced tens of billions of dollars of tariffs on China, the Dow Jones Industrial Average on Thursday collapsed by more than 700 points. China has already vowed retaliation.
Gold futures were trading up more than1.5% Friday afternoon, adding to a positive showing on Wednesday. That day’s advance came as the Federal Reserve moved, as expected, to increase interest rates while signaling that it wouldn’t accelerate the pace of rate hikes this year. The rate hike should be a negative for gold – but the metal likely reacted the way it did because the Fed’s rate increase was anticipated. What investors have been concerned about was the potential for more rate hikes in 2018.
Gold is also garnering support from a weaker U.S. dollar. Gold is priced in U.S. dollars, therefore, when the dollar declines it makes the commodity more affordable for holders of international currencies. On Friday, the ICE U.S. Dollar Index, which measures the value of the greenback against a basket of six international currencies, was lower. Year-to-date, the dollar index is down almost 3%.
In a forecast released in early February, Goldman Sachs said gold would push to $1,350 in three months, $1,375 in six months and to $1,450 next year. This was a sharp revision versus the investment bank’s previous forecast for $1,225, $1,200 and $1,255, respectively.