Goldman
Sachs Analysts Forecast $1,650 Gold In 12 Months By Kitco News | 12
October 2010, 9:56 a.m.
(Kitco News) - Goldman Sachs has raised
its 12-month forecast for gold to $1,650 an ounce, citing
expectations for further quantitative easing in the U.S.
and prospects for long-term interest rates to continue falling.
“With U.S. real interest rates pushing
lower off the slowdown in the pace of the U.S. economic
recovery and the growing prospect of another round of quantitative
easing, we expect gold prices to continue to climb,”
said the Goldman report, authored by David Greely and Damien
Courvalin. “Despite the rebound in net speculative
length, it remains well below levels consistent with the
current low U.S. real interest rate environment.”
Goldman said the decline in U.S. real interest
rates is likely to persist, and rates could push even lower
in the near term should the Federal Reserve undertake quantitative
easing measures. Thus, Goldman said it is raising its gold
price forecasts to $1,400, $1,525 and $1,650 on a three-,
six- and 12-month horizon. Goldman said its updated forecasts
point to an average of $1,575 an ounce in 2011, which is
$175 higher than it previously expected.
“The return to quantitative easing
will likely be a strong catalyst to drive gold prices higher,
and we expect the gold price rally to continue until U.S.
monetary policy begins to tighten,” Goldman said.
The bank’s economics team expects
the Fed to return to quantitative easing with purchases
of U.S. Treasury securities of $1 trillion, which in turn
should keep U.S. bond yields depressed. Furthermore, the
bank said it expects the announcement at the Federal Open
Market Committee’s Nov. 2-3 meeting.
Goldman said the rally since August came
as the yield on 10-year U.S. Treasury Inflation-Protected
Securities plummeted, with the yield now closer to the 0.50%
than the 1.0% imbedded in prior forecasts. It also cites
stronger demand for the metal for gold exchange-traded funds
and from central banks.
However, while Goldman said gold could rally
for an “extended period,” it also sees a “considerable
downside risk” in the longer term, should the Fed
eventually tighten monetary policy earlier than expected.
For now, Goldman said, its U.S. economists
suggest that it could take until 2015 or longer before a
rate hike becomes “appropriate,” although they
emphasize this is not a “formal forecast.”
“While they do not expect tightening
to happen before 2012 at the earliest, we view an earlier-than-expected
tightening of U.S. monetary policy as the primary downside
risk to our gold price forecasts,” Goldman said.