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What Convinced Goldman of a Gold Revision?

What Do Major Banks See Ahead for Gold?

Gold’s revised forecast

When analyzing gold’s price movement, it’s crucial to consider what major bankers (IYF) think. Much of gold’s trade is controlled by banks. Though gold started 2016 with a bang, Goldman Sachs (GS) was increasingly pessimistic about its future prospects.

Goldman’s commodity team had previously expected a weaker price for gold. However, the team recently changed its mind regarding some commodity calls, namely crude oil.

Goldman raised its forecast for gold in May as gold’s price rose almost 22% compared to its price at the start of the year. Global fears and concerns hovering around a potential interest rate hike likely played a role in the bank’s raising its forecast.

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Goldman now has gold at $1,200 per ounce in the next three months, $1,180 in the next six months, and $1,150 in the next year, rises from its previous figures of $1,100, $1,050, and $1,000, respectively.

Though Goldman Sachs estimates a downward turn for gold in the future, it has also mentioned that there remains limited room for further gains, as the Federal Reserve will likely tighten its belt as soon as the economy looks stable.

Volatility caused gold’s price to rise

According to the bank, the risk-off mode that majorly impacted gold and related funds such as the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV) is not likely to repeat itself. Gold had its best quarter in almost 30 years and rose about 18.3% in 1Q16. The above-mentioned two funds also rose 18.4% and 21.3%, respectively, year-to-date.

Such massive gains resulted from a rise in volatility, as shown in the above chart, which caused haven assets to jump. The Chinese (MCHI) market slump, the crude oil rout, and the substantial tumble of the equity markets seem unlikely to repeat in the near future. Therefore, Goldman has maintained a comparatively less favorable outlook for gold.

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