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Goldman Sachs is bullish on gold as base metals rise on trade war détente hopes

Greenhouse gas and gold mines Nearly 1 ton of CO2 emitted per ounce of gold produced in 2019

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Goldman Sachs is bullish on gold as base metals rise on trade war détente hopes

Goldman Sachs flagged economic stability concerns, saying gold will breach the psychologically important US$1,300-per-ounce mark within three months, even as base metals rose for the week ending Jan. 11 amid hopes of a U.S.-China détente and dovish U.S. Federal Reserve comments.

Goldman Sachs raised its gold forecasts to US$1,325/oz, US$1,375/oz and US$1,425/oz over the next three, six and 12 months, respectively, from US$1,250/oz, US$1,300/oz and US$1,350/oz, citing a "sharp deterioration in risk sentiment following soft macroeconomic data in December [2018] and renewed concerns about the future direction of growth."

"Going forward, gold will be supported primarily by growing demand for defensive assets. The same is also true of central bank buying, with rising geopolitical tensions incentivizing more central banks to re-enter the gold market," Goldman said in a Jan. 10 note.

U.S. Federal Reserve Chairman Jerome Powell also expressed concerns about the country's ballooning debt, which is reaching new sustained highs above US$1 trillion.

Policy sources told Reuters that China plans to set a lower economic growth target of 6% to 6.5% this year compared with the 2018 target of around 6.5%.

Meanwhile, the U.S. partial government shutdown was on the way to matching the longest in the country's modern history, 21 days under President Bill Clinton. At end of Jan. 12, the shutdown had eclipsed the one that stretched from Dec. 16, 1995, to Jan. 6, 1996, The Wall Street Journal said.

Price ring

Gold edged up to US$1,291/oz for the week, silver fell slightly to US$15.70/oz, and the Chinese spot iron ore import price rose 2.3% to US$72.70.

Base metals rose during the week amid hopes for a trade war thaw, with the Chinese Ministry of Commerce reassuring the U.S. on Jan. 10 that the countries would continue trade talks as scheduled. Chinese Vice Premier Liu He is scheduled to visit Washington on Jan. 30-31 to meet with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, sources told Bloomberg.

Positive sentiment was also derived from Federal Open Market Committee minutes from December 2018, released Jan. 9, which showed Powell saying the bank had the ability to be patient regarding monetary policy.

Copper rose to US$5,926 per tonne, nickel rose to US$11,395/t, lead rose to US$1,960/t and tin rose to US$20,475/t. Zinc slumped to US$2,469/t, and aluminum dropped to US$1,815/t.

Talking points

Analysts were also talking about opposition leader Felix Tshisekedi being announced the unexpected winner in the Democratic Republic of the Congo's Jan. 10 presidential elections.

Though Tshisekedi was reported to have secured 38.6% of the more than 18 million votes, many observers questioned results and suggested outgoing President Joseph Kabila may have struck a deal with the winner. Martin Fayulu, who came second, claimed electoral fraud had occurred and disputed the result, while the influential Catholic Church said its own findings from 40,000 election observers did not match the official count.

Bernstein said Jan. 11 that "while the election does not appear to be perfect, it is certainly a step in the right direction" for the DRC.

"The transition to democracy is never straightforward and we believe that pragmatists on all sides will realize that it is better to bank the gains of the progress that has been made rather than risk further disruption," Bernstein said.

Financings

Xiamen Tungsten Co. Ltd. issued a debt offering of 600 million Chinese yuan.

The Australian reported that Yancoal Australia Ltd.'s ultimate parent, Yankuang Group Co. Ltd., will purchase bonds belonging to the Hunter Valley coal mines in New South Wales, Australia, for US$200 million as part of a previous financing deal.

Elvalhalcor Hellenic Copper and Aluminium Industry SA copper-producing unit Sofia Med SA secured a €25 million loan from the European Bank for Reconstruction and Development, Reuters reported.

Osisko Gold Royalties Ltd. completed an initial C$9.8 million investment in December 2018 to repurchase 849,480 shares for cancellation at C$11.56 apiece. The buyback was completed under a repurchase program of up to C$100 million, which forms part of a normal course issuer bid.

GK Resources Ltd. plans to raise up to C$450,000 through an IPO of 3 million shares at 15 Canadian cents apiece on the TSX Venture Exchange.