Goldman Sachs: Upside Requires More Disinflation

Goldman Sachs write “over the past month, gold prices have moved closely with US real rates driven by the December Fed pivot.”

• “Gold remains an attractive asset in current macro setting where a decline in real rates boosts gold demand on falling opportunity cost of holding gold and higher rates can lead to a haven bid, in our view.”
• “Whilst December core CPI rose slightly above expectations, the market expectations of an easing cycle in 2024 remain in place and are largely reflected in gold prices, and participants are now focused on catalysts which can drive gold prices higher.”
• “We note that ETF investment demand has yet to turn a corner and the COMEX speculative positioning data shows net length (currently at 87th percentile) have plenty of upside left.”
• “A rise in the investment demand (ETF and speculative) will be key to gold’s next leg higher which we believe will be data-driven (more disinflation or weaker labour market).”
• “Lastly, gold fundamentals remain supported via strong central bank buying (+14% y/y year-to-Oct'23) due to elevated geopolitical risks and resilient EM retail demand (+6% year-to-Sep'23). In this context, we remain constructive on gold with our 12m target at $2,175/oz.”