The Federal Reserve’s commitment to slow the economy to cool rising inflation continues to push the US economy closer to recession. In this environment, Goldman Sachs explains its scenarios for how the gold price will move.
“Gold has more upside potential than downside risks”
Goldman Sachs CEO David Soloman gave an interview to CNBC on Tuesday. Soloman says it’s a time to be cautious, as the likelihood of a recession is high. The investment bank predicts a potential upside for gold in a recessionary environment. Soloman’s comment follows.
In a report released last week, commodity analysts at Goldman Sachs note that uncertainty dominates the market. They also state that gold has been going through a rather volatile period. Despite this, analysts say that the upside potential of gold is greater than the downside risks. Analysts underline the following points in the report:
Growth concerns are likely to trigger a material return to defense assets, along with a decline in real interest rates. Our main finding is that rising recession risks create a positive asymmetry in the gold’s return profile. In the event of a ‘soft landing’ or a growth shock that pushes the US economy into recession, gold’s fall is significantly less likely than its rise.
4 scenarios for gold from Goldman
cryptocoin.com As you can follow on , the Fed’s aggressive monetary policy pushed the US dollar to 20-year highs. That’s why gold spent most of 2022 with great difficulty. In the report, Goldman analysts describe four scenarios and how they will affect gold prices.
The bank sees a 30% probability of a soft landing for the US central bank as the country avoids a recession. This will push gold prices to $1,530 as 10-year real interest rates rise slightly to 1.7%.
At the same time, Goldman sees a 30% chance of recession in the absence of significant rate cuts until 2025. He predicts that gold prices will rise to $2,250 in this scenario. Analysts also predict that real interest rates will fall by 1%. However, they say it will still stay in positive territory.
The worst-case scenario for gold is an increased threat of inflation. The scenario states that this will force the Fed to continue raising interest rates. This environment will push gold to $1,500 and real rates will rise to 1.5%. Goldman estimates the probability of this happening at 20%.
In Goldman’s fourth scenario, gold prices go to $2,000. The bank predicts a 20% chance of recession amid limited rate cuts that will push gold back here. In this scenario, the central bank is balancing growth concerns with persistent inflation. Therefore, it expects the policy rate to fall to 2.5% by 2025.
