Goldman Sachs believes that gold will "outperform" in the coming months, according to a research note published today and reported by CNBC. A team of analysts, led by Eugene King, suggested that "the dislocation between the gold prices and U.S. rates is here to stay." This marks a significant shift for the major bank, as it is the first time that commodity analysts from Goldman are bullish on the precious metal in more than five years. The analysts suggested that signs of an boost in inflation and "increased risk" of a correction to the stock market would help to bolster the price of gold in the months to come.
Goldman analysts posted their prediction regarding gold just days after the Federal Reserve approved a quarter-point rate hike, placing new benchmark funds at a rate of 1.75%. Fed chairman Jerome Powell suggested that the future of rate hikes might be more aggressive. Goldman analysts tied in their predictions with this news from the Fed, indicating that "based on empirical data for the past six tightening cycles, gold has outperformed post rate hikes four times." At this point, the market is pricing in three rate hikes for 2018; this remains the baseline forecast from the central bank of the U.S., with at least one additional increase being added for the subsequent two years as well.
Goldman, for its part, has forecasted four interest rate hikes for this year. Analysts for the bank explained that bullish projections for gold might be "counterintuitive" in light of that forecast, the team nonetheless explained its estimates by looking at data from past tightening cycles.
Often, investors move toward gold when they have increasing fears about other areas of the financial world. The report from Goldman made mention of an "increased risk" of a stock market correction. Some analysts have predicted such an event for months, looking toward a time when the rally associated with the election of 2016 and the first months of Donald Trump's presidency might eventually reverse itself. For the time being, this remains difficult to say. However, should Goldman's predictions come to pass, and if gold continues on its upward path into the future, its likely that some analysts will view this as a barometer of general investor sentiment and, more specifically, of investor hesitation or fear. Given that Goldman has just reversed its stance on gold for the first time in several years, it's likely that all eyes will be on the precious metal in the months to come.
As of 1:40 p.m. London time on the day of the Goldman report, gold was trading for $1,347.92 per troy ounce. Earlier in the trading session, it reached its highest level in roughly one month.