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LAWRIE WILLIAMS: Goldman still cautiously bullish on gold

With what many might consider ultra cautious three, six and twelve month forecasts for the gold price of $1,250, $1,300 and $1,350, Goldman Sachs commodities analysts are hardly going out on a limb. But they are bankers and bankers generally don’t like to rock the boat and tend to come up with conservative forecasts one way or the other. At least the forecasts are unchanged from a month ago and remain positive, and there is the warning that if U.S. growth slows, which they do anticipate, the principal risks for gold are to the upside.

We would like to think that the Goldman analysts are indeed being over cautious. Equities markets remain in disarray, the dollar seems as if it might be be slipping at last, the big gold ETFs are again seeing inflows after about six months of negative figures and, by all accounts, central banks seem to be beginning to de-dollarise and moving some of their reserves into gold. Russia, Kazakhstan and probably China have been dong this in a concerted manner for a few years, but now other nations seem to be building up gold holdings too. This is in part a defensive measure against the U.S.’s seeming increasing propensity to impose economic sanctions on those regimes with which it disagrees and the threatening sanctions impositions on those who might wish to trade with the sanctioned nations too.

The U.S. midterm elections tomorrow are adding a considerable degree of uncertainty to the mix too. Polls suggest that the Democrats may take the House of Representstives, while the Republicans will almost certainly comfortably retain a majority in the Senate, but election results in the U.S. - and elsewhere recently – have been producing some surprise results and the votes for the seats in the House are, in many cases too close to call.

Should the Republicans retain their current House majority then the Trump administration will no doubt see this as confirmation of approval for its ongoing programme and one suspects the dollar will continue its upwards path – at least initially – to the possible detriment of the gold price. However should the Democrats take control of the House this would likely be seen as precipitating a legislative impasse and the dollar could fall, likely leading to an upwards kick in the gold price. American politics is hugely divisive at the moment and the results may come down to who is most successful in getting their supporters out to vote.

The Fed’s interest rate policy is another factor in the gold price equation and recent economic data suggest there is little chance of it holding back on another small interest rate rise next month, although one assumes this may have already been taken into account in the current gold price level. But, in the event of a december rate rise we may well see gold turning back down, temporarily, despite President Trump’s admonition that rates are moving up too fast and are potentially stifling economic growth. The independence of the Fed could be called into question here, but we think a change in policy is unlikely. While we think that the overall future for the gold price is positive at the moment, these headwinds may well slow, or reverse, any increase – at least for a short time.  This could make the Goldman Sachs forecasts more accurate than we would like to think.

05 Nov 2018

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London – recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com

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