In a recent note, Goldman analysts said the case for diversifying into gold is “as strong as ever”. According to an article by Reuters, published December 9th, 2019, Goldman Sachs has kept its 3-, 6- and 12-month forecasts for gold at $1,600 per troy ounce, expecting investment demand to be supported by fears of recession and political uncertainty.
Goldman Sachs is recommending its investors diversify their long-term bond holdings with gold, citing “fear-driven demand” for the precious metal. We certainly concur with that assessment. While the “everything is rosy and back to normal" bandwagon has gained a growing following lately, we continue to warn our clients of the big picture risks.
1-Year Gold Price (in USD/kg and USD/Ounce)
At BFI and Global Gold, we strongly recommend allocating part of the portfolio to alternative investments and it is clear by now that bonds should not be relied upon to act as the “safe” asset class they once were.
“Gold cannot fully replace government bonds in a portfolio, but the case to reallocate a portion of normal bond exposure to gold is as strong as ever,” Goldman analysts advised in a note last week and added that “we still see upside in gold as late cycle concerns and heightened political uncertainty will likely support investment demand for bullion as a defensive asset.”
Gold has gained about 14% so far in 2019, on track for its biggest annual rise since 2010. It peaked at $1,557 an ounce in early September as the Federal Reserve cut borrowing costs and the total pile of debt yielding less than zero climbed to a record $17 trillion.
Although gold has fallen more than 6% from that high, Goldman expects prices to climb to $1,600 over the next year. Thus, while the correction may have a little more room to run, we do recommend looking for the next opportunity to add to your gold position, if your portfolio structure calls for it.