Goldman Sees Legs In Gold’s Rally To Seven-Year High

Goldman Sees Legs In Gold’s Rally To Seven-Year High

about 4 years ago2 mins

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Investors who fled to the safety of gold after the US killed a top Iranian general last week have pushed its price to the highest level in almost seven years. But while some analysts are forecasting further gains for the precious metal, others point to technical signals suggesting the rally has gone far enough for now.

What does this mean?

Gold, you know I want your love
Gold, you know I want your love

Gold is one of a handful of “haven” assets – along with the likes of US government bonds and the Japanese yen – that tend to attract investors when times are tough. That’s because they consider it a safe store of value: it may not pay you a return, they shrug, but it is very shiny.

On Monday, analysts at investment bank Goldman Sachs published a report highlighting gold’s appeal in times of crisis. Bullion performed well “during the beginning of both Gulf wars and during the events of September 11, 2001,” they wrote, and as such “additional escalation in US-Iranian tensions could further boost gold prices."

The investment bank isn’t getting too excited about the potential for further big gains just yet, mind you: Goldman reiterated its $1,600 per ounce price target for gold, just a few dollars above Monday’s $1,588 peak.

What’s the bigger picture?

Ascending US inflation is further boosting gold, analysts at Nordea observed on Sunday. They pointed to the below chart, which shows that when the “real yield” on US bonds falls, the price of gold tends to rise. A real yield is calculated as the nominal yield minus inflation, so real yields tend to fall when inflation picks up.

We push and pull like a magnet do
We push and pull like a magnet do

Still, some analysts caution that investors have become a little too keen on the gold stuff. A key technical indicator known as the relative strength index (RSI) has risen to its most “overbought” level in 20 years, suggesting the rally may have gone too far too fast.

I'm in love with the shape of you
I'm in love with the shape of you
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