Goldman Sachs note that “gold prices have been under pressure recently, as the strong dollar has hurt major gold consumers while investment demand remains split between recession worries and hawkish DM central banks focused on bringing inflation under control. We find that for gold investment demand to build momentum there needs to be a defensive rotation out of equities into bonds. This in its turn requires the market to see evidence of moderation in the Fed tightening pace and shift its focus from tightening to growth risks, in our view. Given our economists' view for a slowdown in US inflation and a slower pace of Fed hiking post the September meeting, we believe the probability of this defensive rotation in the next several months is high. Until then, gold is likely to be highly sensitive to the dollar exchange rate of major gold consumers.”
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