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Gold “Underpriced,” Heading Back to $2,000: Goldman Sachs

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Gold’s path to $2,000 is open, falling Treasury yields are a major tailwind for gold, and gold, silver and platinum all make for good investments in the current climate.

Goldman Sachs: Gold underpriced at $1,800, ready to move back to $2,000

Even though gold met many bullish expectations last week by consistently closing above $1,800, Goldman Sachs analyst Mikhail Sprogis thinks the move could be the start of a much larger uptrend. Sprogis, who had already called for $2,000 gold in a previous note, stuck to his forecast and said that gold is well-positioned regardless of which direction stock markets are headed.

As of right now, Sprogis said that gold is being pressured by what is likely excessive optimism, with investors buying into stocks and betting on a strong global economic recovery. If inflation expectations remain mitigated as they have been after the latest Federal Reserve meeting, Sprogis says that gold is scheduled to move up gradually with subdued real interest rates and a rise in emerging market wealth.

Interest rates matter for gold because sovereign bonds, especially U.S. Treasury bonds, are viewed alongside gold as safe-haven assets. Unlike gold, bonds pay interest to investors. So when bond yields drop, the opportunity cost for holding gold instead of bonds diminishes. Lower interest rates make gold a more attractive safe haven.

Gold’s price rise could be much quicker and stronger if the global economy disappoints or if transitory” inflation emerges as a bigger threat than is currently believed. In this scenario, Sprogis said prices will be supported further by gold’s current undervaluing and relatively low portfolio allocation among the majority of investors.

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