Goldman says buy gold now: 'Time to buy the currency of last resort'

Published Tue, Mar 24 202010:32 AM EDT

(This story is for CNBC PRO subscribers only.) Gold prices jumped more than 6% on Tuesday, putting the precious metal on track for its best day in 11 years, and Goldman Sachs believes the Federal Reserve's latest stimulus package will prompt investors to seek out the safe-haven asset and drive prices even higher. "Time to buy the currency of last resort," Jeffrey Currie, Goldman Sachs' global head of commodities research, succinctly summed up in a note to clients Monday night. Gold has gained more than 12% in the last two days as the Federal Reserve on Monday pledged unlimited asset purchases to support the markets. Prices are rallying as investors believe gold will be the best alternative as the central bank's actions lead to currency debasement and possible inflation. Gold is, however, coming off two straight weeks of losses. Prices have fallen in tandem with the broader market as ongoing uncertainty around the coronavirus outbreak pressured all areas of the market. But Goldman said a similar scenario played out in 2008 where gold initially underperformed, failing to act as a safe haven asset. But that changed once the Federal Reserve stepped in. "We have long argued that gold is the currency of last resort, acting as a hedge against currency debasement when policy-makers act to accommodate shocks such as the one being experienced now," Currie said. The firm is "increasingly confident" about its 12-month target of $1,800 per ounce, which is roughly 8% higher than where gold futures currently trade. "We are likely at an inflection point where 'Fear'-driven purchases will begin to dominate liquidity-driven selling pressure as it did in November 2008," he said, adding "as such, both the near-term and long-term gold outlook are looking far more constructive." On Monday, the Federal Reserve said it will launch a barrage of programs aimed at helping markets function more efficiently amid the coronavirus crisis. Among the initiatives is a commitment to continue its asset purchasing program "in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy." This was the Fed's latest effort to shore up the economy as the coronavirus outbreak continues to halt business activity. The central bank previously slashed interest rates to near zero, among other actions. Goldman said gold's fall prior to the Fed's new stimulus measures was due to funding constraints that forced investors to sell liquid positions such as gold. Additionally, "large falls in the price of oil have created dollar shortages for emerging market (EM) economies," the firm said. Goldman has been bullish on gold for some time. Earlier this month, the firm said the preciously metal is "immune to the virus." - CNBC's Michael Bloom and Jeff Cox contributed reporting.

(This story is for CNBC PRO subscribers only.)

Gold prices edged higher on Thursday, buoyed by a weaker dollar and escalating tensions in the Middle East, while investors await more U.S. economic data that could shed light on the Federal Reserve's interest rate outlook.

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Gold prices jumped more than 6% on Tuesday, putting the precious metal on track for its best day in 11 years, and Goldman Sachs believes the Federal Reserve's latest stimulus package will prompt investors to seek out the safe-haven asset and drive prices even higher.

"Time to buy the currency of last resort," Jeffrey Currie, Goldman Sachs' global head of commodities research, succinctly summed up in a note to clients Monday night.

Gold has gained more than 12% in the last two days as the Federal Reserve on Monday pledged unlimited asset purchases to support the markets. Prices are rallying as investors believe gold will be the best alternative as the central bank's actions lead to currency debasement and possible inflation.