Throughout the week, gold prices surged, nearing the $2,400/oz mark, albeit ultimately closing lower. Nonetheless, the trajectory of gold prices unmistakably indicates an upward trend. This surge is propelling the rally forward, prompting speculation on its longevity.
Goldman ups target for gold
Throughout the week, gold prices surged, nearing the $2,400/oz mark, albeit ultimately closing lower. Nonetheless, the trajectory of gold prices unmistakably indicates an upward trend. This surge is propelling the rally forward, prompting speculation on its longevity.
Goldman ups target for gold
The recent rally in gold prices got a kick after Goldman Sachs upped its target for gold to $2,700/oz. This is a full 12% higher than the current price levels. It must be remembered here that gold has already rallied by 20% since the start of 2024, so this 12% rally implied by the Goldman Sachs estimates are on top of that rally. Goldman Sachs has identified several factors for the gold spike, which includes the rising tide of geopolitical risk in the Middle East and the intense demand for gold from central banks.
Why gold rally is an anomaly?
Many gold watchers have implied that the current rally in gold does not adhere to the classical definition of how gold rallies have happened in the past. The biggest trigger for gold has been a cut in interest rates
The recent rally in gold prices got a kick after Goldman Sachs upped its target for gold to $2,700/oz. This is a full 12% higher than the current price levels. It must be remembered here that gold has already rallied by 20% since the start of 2024, so this 12% rally implied by the Goldman Sachs estimates are on top of that rally. Goldman Sachs has identified several factors for the gold spike, which includes the rising tide of geopolitical risk in the Middle East and the intense demand for gold from central banks.
Why gold rally is an anomaly?
Many gold watchers have implied that the current rally in gold does not adhere to the classical definition of how gold rallies have happened in the past. The biggest trigger for gold has been a cut in interest rates, since it reduces the opportunity cost of holding gold. But, in the last few weeks, the Fed has been only indicating that rate cuts could be put off to September. Hence the rally in gold does look anomalous. However, one justification is that when an asset has the potential to rally around 35% to 40% in a year, then opportunity cost of holding the asset does not really matter.
It is about geopolitical risk
The immediate trigger for gold prices is probably coming from the worsening situation in the conflict zones of Middle East and West Asia. With Israel and Iran on the throes of a full-fledged war, the repercussions could be much larger and it could also be a prolonged war. Iran has Russia as its long-time ally, while the US has been a consistent backer of Israeli interests. Obviously, that is going to expand the theater of war and bring more countries and regions into the conflict, should it continue for a longer period of time. The region also holds the key to oil trade. A prolonged conflict will mean tensions in the Red Sea, attacks from Houthi rebels continuing, conflict spreading to the Arab peninsula as well as a heavy impact on the passage via the Strain of Hormuz. That is tough!
Central buying could hold key China has been one of the central banks buying aggressively into gold as a proxy for a safe currency reserve asset. China also holds one of the world’s largest stash of dollar debt and that is what the world is cautious about. Any impact on the dollar of Chinese dollar selling, will be only done after it adequately stacked up on gold. That means central bank buying in gold should continue for some more time. Not just the PBOC, but the other central banks may also join, and India, Turkey have been among them. Gold is here to stay for a long time.
