Gold to benefit if China recovers strongly from second virus wave - Goldman Sachs

Goldman Sachs expects gold to benefit if China, the world`s top retail buyer, recovers much strongly from a second wave of COVID-19 cases than the United States, and reinforced its $2,000 an ounce target for bullion prices. The Wall Street bank recommended maintaining long positions in copper, silver, steel and gold, which are "both less exposed to areas with new outbreaks — Asia and Europe versus the Americas — and less exposed in the event of an outbreak."

Total cases of the novel coronavirus in the United States cross 3 million, a Reuters tally showed, with the country reporting more than 60,500 new infections — a one-day record.

Increased safe-haven buying has pushed spot gold prices 18% higher so far this year, and it breached the key $1,800 an ounce level this week — the highest since Sept. 2011.

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Going forward, the bank expects prices to average $1,740 in 2020 and $1,988 an ounce next year, adding that rising inflation and a weaker dollar are among key factors that will boost prices.

Silver too has a "near perfect environment" to finally perform," the bank said in a note dated July 9, based on drivers including a Chinese-led recovery in industrial activity, safe-haven buying and lower supply due to COVID-19-related mining disruptions in the Americas.

It also recommended going long on Brent crude futures, and maintaining short positions in U.S. crude, reasoning that "core U.S. fundamentals are providing headwinds to WTI."

On a 3-, 6- and 12-month horizon, Goldman sees returns of -9.3%, 1.7% and 13.9% on commodities over the S&P GSCI index. The year-to-date return on commodities is seen at -31.6%, compared with 17.4% in 2019.

The bank forecast 3-month returns of -4.0% for industrial metals, -0.9% for precious metals and -11.7% for energy complex.