Goldman Sachs call helps gold and silver prices

Last month Goldman Sachs became much more pessimistic in regard to commodity prices, and advised investors to take profits. However, yesterday the US bank revised its outlook for some important commodities upwards again – notably crude oil, zinc and copper. Commodity prices have risen in response, as have the shares of oil, gold and base metal producers.

Goldman bases its revised outlook on its expectations of increases in global growth. In its view, rising global demand for important commodities could lead to supply bottlenecks in the second half of 2011, which will likely result in higher prices. The brokerage firm Davy notes that the supply situation at the tungsten market will tighten further, with many indicators pointing to a supply deficit of 15,000 tonnes at western markets in the coming years. 75 per cent of the tungsten mined each year comes from China, and the price of the metal has more than doubled over the last year. Moreover, Goldman Sachs was optimistic for the midterm development of crude oil prices, increasing its outlook for Brent crude from $107 to $130 a barrel.

Goldman’s analysts have forecast developments in commodity markets quite precisely in the last couple of months. Furthermore, a growing number of market participants wonder whether the Federal Reserve will actually stop its quantitative easing measures at the end of June, with many expecting the US central bank to continue reinvesting revenues from maturing mortgage bonds into US Treasury bonds. The Fed currently receives around $17 billion per month in proceeds from its portfolio of mortgage-backed securities. Aside from QE, the Fed’s continuing zero interest rate policy has also encouraged speculation in commodities.

The first two trading days of the week have seen the gold price hitting new euro denominated all-time highs. Yesterday, the yellow metal also hit a new record high in British pounds at £942.98 per ounce. The pound was under pressure against most other currencies, after the rating agency Moody’s Investors Service listed 14 British banks that are facing downgrades of their credit worthiness.

A National Statistics Bureau report which showed the country’s budget deficit increasing in April as a result of rapidly declining tax revenues and rising government spending piled further pressure on the pound. The government´s net borrowing soared to £10 billion during this period. This corresponds to an increase of £2.8 billion in comparison with the same period last year. The UK’s problematic fiscal situation is providing further impetus to increases in the sterling gold price.

Yesterday evening gold was trading at $1,525 per ounce at the New York Comex. The silver price increased to $36.30 per ounce. Palladium gave up most of its daily gains and quoted at $735 per ounce, while platinum fluctuated around $1,760 per ounce.

Source: Gold Money