Goldman Sachs Turns Bullish on Gold

Release Date: 
Friday, June 30, 2017

Gold prices fell this week but remained on track to end the first half of 2017 up 8%.

“Gold prices edged lower Friday, set for their first monthly decline since March, with a fourth straight weekly decline driven by a rise in global bond yields, which diminished appetite for precious metals. A steadying U.S. dollar and equity market, following Thursday’s technology stock-led selloff, and mostly upbeat economic data, added pressure to silver and gold futures …

“The metal is looking at a roughly 1% decline for the week and a 2.5% drop for the month, but an 8% rise for the first six months of the year, according to FactSet data tracking the most-active contracts….” (“Gold poised for first monthly loss since March,” MarketWatch, 6/30/17.)

Gold ended the week down $15.40, closing at $1,242.20. Silver prices closed at $16.71, down $0.07.

Goldman Sachs Turns Bullish on Gold
Goldman Sachs has moved from being a gold bear to a gold bull according to the Lombardi Report.

“Perpetually Bearish Investment Bank Surprisingly Turns Positive on Gold Price No, hell hasn’t frozen over. Nor has Bigfoot been spotted. But an equally rare event has transpired: Goldman Sachs Group Inc (NYSE:GS) has turned bullish in its gold price forecast. Yes, I did a double-take as well.

“The huge investment bank issued a rare positive take on gold, citing three specific factors which could offset rising interest rates in 2017 … The factors that Goldman Sachs cites are: 1. Low expected returns on U.S. equities, which should support more defensive asset allocations; 2. Accelerating emerging market (EM) gross domestic product (GDP) growth, which would give more purchasing power to EM nations that favor gold ownership; and 3. Expected mine supply peaking in 2017….” (“Welcome Catalyst? Goldman Sachs Turns Upbeat on Gold Price for 2017,” Lombardi Report, 6/29/17.)

Countries Buying Gold to Prepare for Dollar Collapse – The Trumpet
TheTrumpet reported that countries like Russia and China have significantly increased gold reserves to protect themselves from a dollar collapse.

“Russia is loading up on gold. Since May 1, the Central Bank of Russia has added 700,000 troy ounces to their national gold reserve. That’s as much as the combined weight of 33 full-grown Kamchatka brown bears. These new purchases have pushed Russia’s total gold holdings up to 1,707 tons—half over again what they were when Vladimir Putin first came to power in 2000. Russia now has the seventh-largest gold hoard on the planet.

“Both Russia and China are stockpiling gold in a bid to cut their economic dependency on the United States dollar, according to Russian state media outlets, such as Sputnik News. ‘According to our estimates, there will be a downward trend in the dollar exchange rate in the next 15 years,’ financial expert Philip Klinkmüller told Sputnik Germany. ‘In the long run, it cannot be guaranteed that the dollar will remain a global reserve currency…’

“While Germany hasn’t added any gold to its reserves in 17 years, it has repatriated 300 tons of gold stored in the vaults of the U.S. Federal Reserve back to the German Central Bank in Frankfurt … ‘In a major crisis or a breakdown of the monetary system, the demand for gold, and therefore its price, would shoot up,’ said economist Jörg Guido Hülsmann. ‘The Bundesbank’s gold would then be worth so much that it could save the euro solely based upon the confidence the markets place in it…’

“While gold is great disaster insurance, none of this is tremendously significant as long as the global economy stays healthy. But if the world plunges into a second Great Depression, Americans could wake up and see the dollar dislodged from its position of global primacy by currencies that are backed by more than paper. Many U.S. politicians have deluded themselves into believing that the dollar is better than gold, but other nations obviously are not so convinced. Russia and China have been vocal for some time about their desire to increase their gold holdings and move away from the U.S. dollar. But now even U.S. allies like India and Germany are announcing their desire to diversify away from a dollar-denominated economic system….” (“Why Is Russia Buying So Much Gold?” TheTrumpet, 6/27/17.)

Institutional and High Net Worth Investors Are Buying Gold – Gold Eagle
The website Gold-Eagle wrote that institutional investors and high net worth individuals are shifting their portfolios to gold.

“There’s an advantage to being well-connected in an industry: you can sometimes be among the first to spot a change in trend. And that appears to be exactly what’s happening in the gold industry.

“Retail demand for physical gold products has been strong over the past few years, and lukewarm from the institutional crowd. But now traders and dealers are witnessing a shift. Retail demand has gone soft—but interest from institutions and high net worth investors is spiking …

“But why the sudden shift into gold from the institutional crowd? ‘It was hard to tell the gold story in 2012, because the stock market wasn’t at all-time highs,’ says Peter DiMaria … ;They’re nervous that underlying trends could reverse …So they want a hedge in place.’ The thing is, it’s not just the stock market at all-time highs that has led to renewed interest for history’s oldest form of money. ‘It’s everything … This group is nervous about a reversal in the stock market, but also the bond market, the real estate market, the dollar, inflation—you name it. Most everything is stretched...’

“Add it all up…and no wonder the institutional crowd sees the need for a hedge. The catch is, with so many assets at historic extremes, there aren’t many places to hide. Institutional investors see gold as one of those places for two reasons: one, despite some recent strength, the price is still off its 2011 high by 32%, so it represents good value relative to these other major asset classes. And two, gold is a direct hedge against a reversal in virtually all of these assets. If any (all?) of their trends reverse, gold is likely to rise and help offset the decline. There’s a final consideration: the institutional and high net worth crowd represent market-moving wealth. If their interest in gold picks up—which Peter thinks is likely to happen when these markets do inevitably reverse—the spike in demand could ignite the gold price and see it take off like Secretariat at the Belmont Stakes….” (“The Shift Is On: Why Institutional Investors Are Buying Gold Again,” Gold-Eagle, 6/27/17.)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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