Goldman Sachs is maintaining its bullish outlook on gold, looking for prices to push to $1,600 an ounce next year, but its big trade for 2020 is oil.
In a report published Sunday, the investment bank said that it continues to like the precious metal as investors look for alternative investment assets.
“Investment deficit creates excess savings, supporting gold. In theory, savings should equal investment, but due to this decline in capex and a rise in precautionary cash balances, a savings surplus is beginning to develop that is supporting gold prices,” the analysts noted in their outlook report.
“When combined with 750 tonnes of central bank gold purchases related to de-dollarization and defensive portfolio rotations, the savings glut means we maintain our bullish gold stance in 2020 with a target of $1600/toz.,” they added.
Goldman Sach’s gold forecast would represent a nearly 10% gain from current prices. December gold futures last traded at $1,456.70 an ounce down 0.46% on the day.
Heightened global uncertainty coupled with modest global economic growth should continue to support gold prices through next year, the analysts said. Although investor sentiment on the global economy has improved recently, Goldman Sachs noted that recession concerns remain elevated.
The investment bank also sees rising inflation pressures and renewed momentum in emerging market currencies against the U.S. dollar as two other factors to support the yellow metal.
Higher inflation pressures will support gold prices even as the Federal Reserve looks to hold interest rates steady at its current low levels for an extended period, the bank explained.
Turning to silver, Goldman Sachs is less bullish on the metal in 2020, even as they see prices push to $18 an ounce. The bank’s silver outlook represents a gain of 6.5% from current prices; December silver futures last traded at $16.89 an ounce, down 0.68% on the day.
“Outside of investment demand, silver fundamentals remain challenged as industrial demand contracted and mine supply, while flat this year, is expected to grow strongly in 2020,” the analysts said. “While we expect investor interest in the precious space to be high in 2020 it will likely be less than during 2H19 when recession fears spiked. In such an environment while gold investment can continue to grow silver often gets overlooked being the marginal precious metal.”
Although Goldman sees potential in the precious metals complex, their top trade for next year is long oil.
"Absent growth or geopolitical shocks, we expect Brent to continue trading around $60 per barrel in 2020 as OPEC cuts and slowed shale activity will be needed to offset strongly rising supply elsewhere," Goldman said.
Reference: Kitco
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