Major indexes like the S&P 500 and Nasdaq Composite were hitting highs on Monday, making precious metals an afterthought, but global investment firm Goldman Sachs is bullish on gold with a $1,600 per ounce price level forecast in 2020.
The firm mentioned that an environment where excess savings are rampant will help spur the demand for safe haven assets like gold.
“Investment deficit creates excess savings, supporting gold. In theory, savings should equal investment, but due to this decline in capex and a rise in precautionary cash balances, a savings surplus is beginning to develop that is supporting gold prices,” Goldman analysts noted in an outlook report.
“When combined with 750 tonnes of central bank gold purchases related to de-dollarization and defensive portfolio rotations, the savings glut means we maintain our bullish gold stance in 2020 with a target of $1600/toz.,” they added.
Things aren’t so optimistic when it comes to the firm’s view on silver for next year.
“Outside of investment demand, silver fundamentals remain challenged as industrial demand contracted and mine supply, while flat this year, is expected to grow strongly in 2020,” the analysts said. “While we expect investor interest in the precious space to be high in 2020 it will likely be less than during 2H19 when recession fears spiked. In such an environment while gold investment can continue to grow silver often gets overlooked being the marginal precious metal.”
“Absent growth or geopolitical shocks, we expect Brent to continue trading around $60 per barrel in 2020 as OPEC cuts and slowed shale activity will be needed to offset strongly rising supply elsewhere,” they said.
Traders looking to buy the dip can play gold miners and look at the Direxion Daily Gold Miners Bull 3X ETF (NYSEArca: NUGT), which makes a play on gold miners. NUGT seeks daily investment results, before fees and expenses, of either 300%, or 300% of the inverse (or opposite), of the performance of the NYSE Arca Gold Miners Index.
The index is a modified market capitalization-weighted index comprised of publicly traded companies that operate globally in both developed and emerging markets, and are involved primarily in mining for gold and, to a lesser extent, in mining for silver. The Index will limit the weight of companies whose revenues are more significantly exposed to silver mining to less than 20% of the Index at each rebalance date.
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