Goldman Sachs: Gold as a Hedge in the Current Environment

Analysts at Goldman Sachs, one of the four largest US banks, wrote in their new research report that investors should prefer gold in the current environment and that the rise in the price of the yellow metal is far from over.

“We mainly prefer gold in the near future. It best mitigates geopolitical and financial risks, support is also provided by the Federal Reserve’s soon-to-be interest rate cuts and gold purchases by emerging market central banks,”

Goldman analysts wrote in a report published in early September

Concerns about the US national debt and financial condition were also noted, which should help gold continue to rise in price in the long term.

According to Goldman Sachs, the price of gold will rise to $2,700 per ounce in early 2025

A buy recommendation (long gold) was also given for gold.

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This year, the price of gold has already risen by 22 percent and is trading at $2,525 per ounce. Gold, as a precious metal, has been helped to rise to new records by strong physical demand (mainly that of central banks), large budget deficits of countries, high debt levels and fears of an economic recession, which in turn is forcing central banks to lower interest rates.

Institutional Money Flows into Gold

In addition, money from Western investors has also started flowing into gold-backed exchange-traded funds (ETFs). The interest of North American investors in gold-backed ETFs has grown more than that of Europe and Asia in July, according to data from the World Gold Council. According to Goldman analysts, this is precisely the aspect that has been missing from the gold market for the past two years.

In Europe, $1.2 billion flowed into ETFs in July, the largest since March 2022

Investors from the United Kingdom and Switzerland invested most of their money in gold. In North America, $2 billion flowed into ETFs in July, much of it in the wake of presidential candidate Donald Trump’s impeachment attempt and Joe Biden’s withdrawal from the candidacy.

Investors are now expecting the Federal Reserve to start cutting interest rates in the short term in even as little as a week. We are likely to see slightly larger movements in the gold market, which is currently in a rather tight trading range, following the Federal Reserve’s decision.

“The interest rate cuts by the Federal Reserve will bring Western capital back to the gold market, which is exactly the component that has been missing during the rapid rise of the gold market in the last two years,”

Goldman Sachs analysts pointed out

They added that since Chinese investors are price sensitive, any drop will bring new demand into the market, in turn keeping the price on a high plateau.

You can read more about what is happening on the gold market in the analysis of the gold market at the beginning of September.

According to Goldman analysts, oil and copper are not good investments in the near term due to the risk of recession affecting the market price. The noticeable slowdown of the Chinese economy was also pointed out, which will put pressure on the demand for raw materials.

Key Takeaways

Goldman Sachs has strongly positioned gold as the top choice for investors navigating the current economic landscape. With geopolitical tensions, financial uncertainties, and an anticipated shift in Federal Reserve policies, gold is seen as a reliable hedge against multiple risks.

The forecasted rise to $2,700 per ounce by 2025 underscores the bank’s confidence in the metal’s continued strength, driven by central bank demand and increasing interest from Western investors.

As other commodities like oil and copper face challenges, particularly from a slowing Chinese economy, gold remains a resilient asset in the face of potential market volatility.