Leading investment bank offers a forecast for gold

Goldman Sachs analysts expect the price of gold to reach $2,500 an ounce due to the looming recession. Can we trust this forecast? Let's look at some examples.

A year ago, Goldman Sachs raised its target from $2,000 to $2,300, expecting that the Federal Reserve would tolerate higher inflation due to the rising geopolitical tensions, political and social uncertainties in the US, and the second Covid wave. Now we are supposed to believe that the price will be even higher than the previous target but for different reasons, which keep changing.

The rise in gold prices is due to the fact that the US dollar is losing its purchasing value. If the dollar hadn't lost 99% of its value in the past 100 years, the price of gold relative to the USD would be much lower. If it was just 98%, the price would be around $1,000, for example. It's clear to see why the price can rise due to inflation (that is, further devaluation of the dollar), but it's not clear why the recession in itself should trigger a rally, as Goldman Sachs expects.

The bank's other predictions for gold are also problematic. For example, in July 2020 Goldman Sachs head of investment at the Private Wealth Management division told CNBC that buying gold made sense only if one was convinced that the USD would keep losing value — and that the bank didn't have such a conviction. Therefore, according to the executive, the excitement around gold wasn't based on sound analysis.

Ironically, this statement was made soon after Goldman's commodities team raised their 12-month target from $2,000 to $2,300. So who among the bank's representatives is to be believed?

That's not the only example of Goldman Sachs' poor track record when it comes to predicting gold prices. Back in 2012, the bank said that the price would keep growing after it reached an ATH of $1,895. But it kept falling instead, reaching $1,049 in December 2015.

What does this tell us? The analysts working for the largest investment banks are people just like us. They do have insider information and access to confidential market reports, but it doesn't necessarily mean better forecasts.

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