Goldman lifts 12-month gold price forecast to $2,300

Goldman Sachs bumped up its gold price forecast on Tuesday, highlighting concerns around the longevity of the US dollar as a reserve currency.

With more downside expected in US real interest rates, the bank reiterated its long gold recommendation from March and lifted its 12-month gold and silver price forecasts to $2,300 an ounce and $30 an ounce, respectively, from $2,000 and $22.

"The recent surge in gold prices to new all-time highs has substantially outpaced both the rise in real rates and other US dollar alternatives, like the euro, yen and Swiss Franc," Goldman said.

"We believe this disconnect is being driven by a potential shift in the US Fed towards an inflationary bias against a backdrop of rising geopolitical tensions, elevated US domestic political and social uncertainty, and a growing second wave of Covid-19 related infections.

"Combined with a record level of debt accumulation by the US government, real concerns around the longevity of the US dollar as a reserve currency have started to emerge."

GS pointed out that following the Great Financial Crisis, inflation fears peaked only at the end of 2011 as the bounce back in inflation ran out of steam, bringing the gold bull market to a halt.

"Similarly, we see inflationary concerns continuing to rise well into the economic recovery, sustaining hedging inflows into gold ETFs alongside the structural weakening of the dollar, we see gold being used as a dollar hedge by fund managers."