Goldman Sachs bullish on ‘currency of last resort’ gold

Don’t get Goldman Sachs wrong, the bank still believes gold is overvalued, however, in the near term, its commodities research team israising its gold forecast:

We believe that these elements of financial and sovereign risk will likely remain a feature of the market over the near term, after which the gold price will likely trade back closer to the fair value currency basket. As a result, we are raising our 3-month ahead gold price forecast to $1000/toz from $700/toz, our 6-month forecast to $950/toz from $785/toz, and our 12- month forecast to $825/toz from $795/toz. Clearly, if financial risks as measured by the CDS spreads remain high, gold prices could remain higher for longer, presenting upside risk to our forecasts.

And just to confirm, here’s their chart showing how gold is pricing substantially above the bank’s “fair value” currency basket:

Goldman sachs Gold value chart

But in the meantime GS also says:

In the recent financial environment all currencies have become perceived as increasingly risky, with the recent US dollar rally being driven more by declining confidence in other currencies than by increasing confidence in the US dollar. This has left gold as the currency of last resort.

In case you missed it, Citi has already upped its technical gold price forecast to $1,190 or $1,300 by March or May, while Merrill’s CIO Gary Dugan, was cited Tuesday as saying he believes gold prices could reach $1,500 an ounce in the next 12 to 15 months.

Related links:
Gold is the new money
– FT Alphaville
A golden disconnect – FT Alphaville

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