Global bank sees gold price spike

07 Jan, 2020 - 16:01 0 Views
Global bank sees gold price spike

eBusiness Weekly

Moscow – Commodity strategists at US banking  giant Goldman Sachs have projected that the risks for oil prices are  skewed to the downside in the coming weeks, with a fair value of $63 per  barrel, making gold a stronger hedge amid the escalation of tensions  between the US and Iran.

Both oil and gold prices rose sharply on Friday and have continued to  climb after Iran’s top military commander Qasem Soleimani was killed in  a US airstrike in Baghdad, sparking fears of retaliation from Tehran.

The rise was triggered by the concerns that the recent escalations will  lead to oil supply disruptions, with Brent prices reaching $70 per  barrel at one point during the weekend – for the first time in four  months.

Goldman Sachs analysts, however, suggested that the range of possible  outcomes is too large for oil to sustain its current price of $69 per  barrel.

“The range of potential scenarios is very large; spanning oil supply  shocks or even oil demand destruction — which would be negative to oil  prices. In contrast, history shows that under most outcomes gold will  likely rally to well beyond current levels,” Global Head of Commodities  Research, Jeffrey Currie and his team, said in a note Monday.

Oil prices had peaked to their highest levels since the assault on two  Saudi Arabian production facilities last September. But absent a major  supply disruption, Goldman Sachs projected that the risks are skewed to  the downside in the coming weeks, with a fair value of $63 per barrel.

Gold has also rallied by $100 over the past month to hit $1,550 per  troy ounce (toz), heading towards Goldman’s three-month target of  $1,600/toz. Spot gold was trading up by around 1.6% on Monday at $1,576,  having earlier hit a seven-year high of $1,579.72.

Currie highlighted that the precious metal could have further potential  for growth, as spikes in geopolitical tensions – like wars or military  escalations – have historically led to higher gold prices when they are  severe enough to cause currency debasement.

“Accordingly, we found that gold performed well, even controlling for  real rates and dollar weakness, during the beginning of both Gulf wars  and during the events of September 11, 2001,” Currie’s note highlighted.

“Therefore, additional escalation in US-Iranian tensions could further  boost gold prices. All in all, we stick with our three, six and 12-month  forecast of $1,600/toz but see upside risks if geopolitical tensions  worsen.” – Sputnik News-New Ziana

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