By now, regular readers of “Gold News & Views” know all about gold’s remarkable price growth compared to other assets. This price growth seems to have caught the attention of major financial institutions: On September 2, Goldman Sachs sent a note to clients suggesting that they “go for gold.”
In the note, the bank’s commodity research team provided three reasons their clients should consider taking a position in the precious metal.
Reason #1: Rate cuts are poised to boost gold.
Speculation that the Federal Reserve will begin cutting interest rates has provided rocket fuel for gold prices all year. Now, with economic data providing support for a cut, Federal Reserve officials have all but confirmed that the first of many rate cuts will happen this month. Rate cuts boost the appeal for assets that don’t pay a yield, such as gold.
In their note to clients, the Goldman Sachs research team wrote, “Imminent Fed rate cuts are poised to bring Western capital back into the gold market, a component largely absent from the sharp gold rally observed in the last two years.”
Reason #2: Central banks continue to have a massive appetite for gold.
Central banks across the world have been purchasing gold in abundance over the past couple years, and the trend does not appear to be waning. Foreign central banks like gold for its ability to circumvent Western sanctions and hedge against potential problems with the dollar.
Goldman Sachs’ analysis led them to “believe that the tripling in central bank purchases since mid-2022 on fears about U.S. financial sanctions and U.S. sovereign debt is structural and will continue, reported or unreported.”
Reason #3: Gold’s ability to act as a hedge will continue to appeal.
Gold has long been considered a hedge against uncertainty and volatility. With intense geopolitical volatility and recession concerns mounting, the desire for a hedging asset may help propel gold demand.
“Gold offers significant hedging value to portfolios against geopolitical shocks including tariffs, Fed subordination risk, and debt fears,” says Goldman Sachs.
The three reasons Goldman Sachs underlined have been noted, in one way or another, by multiple analysts as reasons why gold’s price not only has rallied in recent history but may also continue to rally for the foreseeable future. These points are among the reasons I own gold. They are reasons you might consider when thinking about your own portfolio.
