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(Kitco News) – Fear of rising inflation, rising public debt, and concern that the US dollar is embarking on a new downtrend are factors that will push gold much further, according to commodity analysts at Goldman Sachs.
In a report on Tuesday, analysts at the financial firm reiterated their view that gold will be the currency of last resort; They also increased their forecast for the precious metal.
The bank now sees gold prices rise to $ 2,300 an ounce in 12 months and silver prices rise to $ 30 an ounce, above the previous forecast of $ 2000 and $ 22, respectively. The comments come as momentum in the gold market has slowed slightly after its historic run to a new all-time high. August gold futures last traded at $ 1,932.60 an ounce relatively unchanged on the day.
Analysts see the potential for higher inflation as governments downgrade their currencies to cope with mounting debt. The bank’s gold forecast is also in line with its inflation expectations for five-year Treasury Inflation Protection (TIPS) values that fall to -2%.
“This relentless decline in real interest rates versus nominal rates limited by the United States Federal Reserve has led to increased levels of inflation in an environment that would normally be considered deflationary,” analysts said. Ironically, the greater the deflationary concerns that lawmakers must combat today, the greater the increase in debt and the greater the inflationary risks in the future.
Although gold is not the great hedge against inflation compared to other commodities like oil and base metals, analysts at Goldman Sachs said it is the best asset in the current environment because it looks like inflation will be driven by degradation of the coin.
“When discussing the drivers of investment demand for gold and raw materials, it is important to distinguish between degradation and inflation. The key is that current degradation and debt accumulation sow the seeds for future inflationary risks even though inflationary risks remain low today, ”analysts said.
Goldman expects investment demand in developed markets (DM) to continue to drive prices. Although physical demand in emerging markets (EM) will remain subdued, they said they expect it to eventually recover from current low levels.
“EM consumers are being pushed out of the market instead of choosing not to participate,” analysts said. “We will probably see this demand materialize when the price stabilizes a bit and investment purchases in DM decrease, creating more space for EM consumers. We believe that investors should not be concerned for the moment with the weak impressions of the EM demand. “
The bank is also bullish on silver as prices will rise to $ 30 an ounce next year. Analysts said they expect higher gold prices and improved industrial demand to drive silver higher with the gold-silver ratio falling within historical norms.
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