How ugly will the gold selloff get? Here’s what Goldman Sachs thinks
New York (May 4) May the 4th be with you. And especially with the precious metals bulls, as the month has gotten off to a pretty rough start for gold.
While the S&P 500 looks ready to turn around what’s been a lackluster week, helped by a rosy economic view from the Fed, the pressure on the shiny stuff is not letting up today. The dollar got a lift from that Fed statement — gold and the dollar tend to move in opposite directions.
Meanwhile, a perceived win by French presidential front-runner Emmanuel Macron in Wednesday evening’s TV debate dulled at least one argument for keeping safe-haven gold in your pocket.
There’s plenty of talk out there about big levels to watch as gold snakes its way down, or up, depending on how the day goes.
On to our call of the day from Goldman Sachs, which has picked an opportune time to weigh in on gold. According to strategist Jeffrey Currie and the team, investors hoping for a short-term pop for gold are likely to be disappointed, but that doesn’t mean there won’t be buying opportunities.
“The main catalysts for further very near term downside in gold, in our view, is a repricing of U.S. rate increases (higher) and a QE reduction (faster), on the back of an increased expectation of U.S. tax reform or infrastructure delivery (cuts) or solid U.S. and global economic growth,” they say in a note to clients.
The Goldman team expects a “moderately lower” shift for gold in the next three months, down to $1,200 an ounce.
In the very near term — as in on Friday — they see payrolls rising by 200,000, versus the market consensus of 185,000. Strong U.S. jobs numbers will send the Fed a message that the economy can withstand more interest rate increases, which Goldman is pricing in for June and September. Rising real interest rates weigh on gold because the metal provides no yield. Plus, the dollar tends to move higher, sending prices for the precious stuff in the opposite direction.
Still, Goldman is on the lookout for bargain gold prices and ready to pounce should the selloff keep uglying up.
“Over the medium term, we would see any significant further pullback in gold as a buying opportunity as our 12-month target remains $1,250 an ounce,” the analysts say.
Why do they like gold in the medium-to-longer term? Weak supply growth from the industry and high valuations in other asset classes that fight for investor money, such as the S&P 500 — Goldman’s year-end target is 2,300 based on valuation concerns.
Now, check out what why this precious-metals retailer thinks all the uncertainty swimming around the world right now is just one big green flag to buy gold and silver.
Key market gauges
Dow YMM7, +0.27% , S&P 500 ESM7, +0.28% and Nasdaq NQM7, +0.37% futures are getting a boost from those Fed minutes. Gold GCM7, -1.11% is down about 1% on the heels of the lowest finish in a month. Copper HGN7, -0.69% is off another 0.5% after the biggest one-day percentage decline since 2015. Wednesday’s session left the Dow industrials DJIA, +0.04% with a small gain, and the S&P 500 and Nasdaq Composite COMP, -0.37% with small losses.
Source: MarketWatch
