Wednesday July 27, 2016 13:45
(Kitco News) - Goldman Sachs, known for its bearish outlook on gold, which was partly credited for initiating gold’s three-year bear market, appears to be changing its tone, with one prominent economist saying he sees gold as a “strategic hedge against problems in the world.”
“We like to say that being long gold is the same as being short politicians and being short politicians is something that you would want right now,” said Jeffrey Currie, head of commodities research at the bank, in an interview with Bloomberg Wednesday.
While interest rate expectations and negative bond yields have been a significant driver of gold prices so far this year, Currie is taking monetary policy out of the equation for gold prices. His comments came ahead of the Federal Reserve monetary policy decision.
Instead of focusing on monetary policy, Currie said there are other geopolitical risks that could potentially propel gold higher.
“Let’s say China is put in a situation and capital controls are put in place, then you get real physical demand for gold,” he said. “Which is why we like gold as a strategic hedge but we don’t like it tactically,” he said.
However, despite the current environment, with growing geopolitical and financial uncertainty, Currie said that they are calling for gold to trade slightly lower, back down to $1,300. August gold futures last traded at $1,326.20 an ounce.
Ultimately, the drop in gold prices could come as Goldman Sacks is pricing in a 65% chance of a rate hike later this year, compared to markets expectations of around 55%.
“Really a benign outcome is what people are focusing on but it does point to potential downside risk in oil as well as gold,” he said.