Goldman Sachs Forecasts Gold at $2,300

Goldman Sachs analysts maintain their bullish outlook for gold through 2021. In a report released this Friday, the investment bank said it would keep its 2021 gold target price of $2,300 an ounce as the world economy balances on the positive news of potential vaccines for the Covid-19. 

Goldman Sachs economists expect to see a robust economic recovery in the United States and around the world. However, commodities analysts Jeffrey Currie and Mikhail Sprogis say there is still a solid strategic case for gold. They think that the structural bull market for gold is not over. It will resume next year as inflation expectations rise, the US dollar weakens, and retail demand from emerging markets continues to rebound. However, analysts state that in the short term, it can be difficult for gold to generate significant momentum in a higher or lower direction.

The fall in bond yields will be supportive for the gold rally

As for what will drive gold prices higher, analysts said they continue to watch real bond yields, which includes inflation. Specifically, a drop in five-year real yields will continue to support gold.

Based on their forecast, short-term US rates will average -2.1% over the next five years. The five-year yield is currently -1.2%, which implies significant downside potential.

Currie and Sprogis further noted that they are paying close attention to five-year bonds. They go on to say that this is because they have the most significant impact on currency markets. As inflation rises, consumers can expect to see a substantial degradation in global currencies.

Most of the gold purchases that took place this year were made by investors who were more concerned about the real purchasing power of the dollar versus losses in their equity portfolios, they said.

Goldman Sachs said it also expects a resurgence in demand for gold in emerging markets in 2021.