Goldman Sachs Says Gold Is "Currency Of Last Resort," Reiterates $1840 Price Target

May 10, 2012 - Bloomberg

Goldman Sachs Group Inc. (GS) stood by its forecast for a rally in gold this year, saying that the precious metal will advance to $1,840 an ounce over six months as the U.S. central bank embarks on a third round of stimulus in June.

Gold remains the “currency of last resort,” according to analysts led by Jeffrey Currie in a report dated yesterday, the same day that the price sank to the lowest level in four months as Europe’s escalating debt crisis boosted the dollar. The restated gold forecast implies a 16 percent surge.

Concerns that Greece may leave the euro reignited Europe’s crisis this week, driving commodities including gold lower along with base metals, crude oil and equities as the dollar climbed. The 17-nation euro area is on the verge of losing one of its members, according to a Bloomberg Global Poll published today.

“In early 2009, we suggested that gold had become the currency of last resort, overtaking the U.S. dollar’s status due to the rising risk of sovereign default and debasement concerns,” Currie wrote. Even as the U.S. currency advanced and gold fell on the European crisis in recent months, “it is too early for the dollar to reclaim this status,” he wrote.

“The case for higher gold prices remains in place,” the analysts wrote. “U.S. economic and employment data has now disappointed for several weeks, European election results point to further stress in the euro area, while anecdotal data suggests that physical gold demand remains resilient.”

The U.S. Federal Reserve will announce additional monetary easing when policy makers meet next month, Jan Hatzius, chief economist at New York-based Goldman, predicted in a report on May 8. The central bank bought $2.3 trillion of bonds in two rounds of quantitative easing from December 2008 to June 2011 to drive the recovery in the world’s largest economy.