CNBC: Goldman Sachs Pushes Gold, Based in Part on Growing Popularity of Deficit-spending Theory

December 09, 2019

Article by Jeff Cox in CNBC financial

Goldman Sachs is a big believer in gold for the year ahead, and one of the main reasons is the advent of an increasingly popular economic approach that encourages government deficit spending.

As part of a bullish forecast for the yellow metal, Goldman said one reason is the growing discussion over Modern Monetary Theory (MMT), which says debt and deficits don't matter so long as inflation remains low. MMT proponents, primarily on the political left, say governments should use low rates to spend on infrastructure and social programs to boost growth and reduce inequality.

While Goldman strategists say they don't expect MMT to be implemented on a wide level, they think simply the talk of it can cause worry about currency debasement and rampant inflation, both historically strong backdrops for gold.

"In the next recession, our US economists do not expect governments to adopt direct monetary financing and expect inflation to remain firmly anchored," Mikhail Sprogis, precious metals analyst at Goldman, said in a research note. "But this doesn't necessarily prevent an increase in debasement concerns if conversations around MMT become more widespread — a potential boost to demand for gold as a debasement hedge."

Goldman's 12-month target for gold is $1,600 an ounce, representing an 8.5% gain from Monday's opening price. The metal has put in a strong performance over the past 12 months, rising nearly 14% amid lower interest rates and a moderating U.S. dollar.

The commodity's best times often come during times of uncertainty, as a safe haven, as well as a store of wealth to hedge against inflation.

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