Goldman Sachs Sees Gold Higher, Takes A Downbeat Stance On Iron Ore

Goldman Sachs GS reinforced its bullish outlook on gold, citing increased central bank demand and expectations of a U.S. Federal Reserve interest rate cut tomorrow.

"While we see some tactical downside to gold prices under our economists' base case of a 25bp Fed cut on Wednesday, we reiterate our long gold trading recommendation and our price target of $2,700/oz by early 2025," the investment bank said in a note.

With the price of gold making new all-time highs, reaching 2589.60 on the spot market, the two-quarter upside price target of 5% doesn't seem much. At the moment, the market is pricing a 65% chance of a 50-basis-point cut tomorrow, per the CME FedWatch tool.

Now read: Why Interest Rate Cuts Won't Automatically Boost The Stock Market

Gold is traditionally seen as a hedge against inflation and economic uncertainty. With the U.S. recession still in discussion and a Fed pivot toward more accommodative monetary policies, investor interest in gold is expected to remain strong, accompanied by buying from foreign central banks, particularly China.

The Fed's anticipated rate cuts could lower bond yields, making gold more attractive as it does not generate interest.

In contrast to its positive gold outlook, the bank recently downgraded its projection for iron ore prices. The bank slashed its fourth-quarter 2024 forecast by $15 per metric ton, lowering it to $85 due to concerns of oversupply despite stabilizing demand from China.

Despite China's attempts at economic stimulus and rising steel demand, the broader economic slowdown and the real estate crisis have dampened demand for iron ore. Its futures briefly dipped below $90, reaching the lowest point in almost two years.

Goldman noted that while there might be short-term support due to restocking ahead of the holiday week in October, but the continued buildup of iron ore inventories is likely to drive prices further down.

Supply-demand imbalances have been a key issue for the market, particularly with major players like Brazil's Vale and Australia's BHP maintaining production levels.

Kallanish Consulting analyst Ian Roper explained the current price dynamics for Bloomberg.

"We need to eliminate about 100 million tons to balance this market, and to do that, we need prices to settle in the $80s," he noted.

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