Last week, Société Générale and Goldman Sachs revised upwards their gold forecasts. What does it imply for the gold market?

Two large financial companies upped their gold forecasts last week. Société Générale now expects that the price of gold will average $1,225 per ounce in the third quarter and $1,200 in the fourth quarter, up from its previous outlook of $1,175 and $1,125, respectively.

Although the outlook is more positive, the company still looks for the metal to ease by the end of the year. The two main reasons for such a forecast are the Fed’s tightening and the softened political uncertainty. As we can read in Société Générale’s report:

“While electoral uncertainty in Europe and political bickering in the U.S. buoyed gold prices in 2Q17, we continue to forecast lower gold prices going forward (…) Fed tightening this year and in 2018 – whether in the form of higher interest rates or balance-sheet deleveraging – will inevitably dent investors’ appetite for gold.”

Goldman Sachs also offered an upbeat view on gold. Actually, the bank has moved from being a gold bear to a gold bull. It raised its three-month, six-month, and 12-month price targets from $1,200, $1,180 and $1,150 to $1,260, $1,261 and $1,250 per ounce, respectively. Goldman Sachs forecasts $1,250 per ounce over the year, as the Fed’s tightening cycle and higher real rates could put further pressure on gold. However, the company believes that three factors may offset rising interest rates in 2017 and 2018: low expected returns on U.S. equities; accelerating emerging market GDP growth, which would give more purchasing power to nations with high propensity to consume gold; and expected mine supply peaking in 2017.

We agree that the eased political uncertainty and tightening monetary policy by the Fed – as well as other major central banks – should put downward pressure on gold. And we also agree that these bearish factors may be counterbalanced by some bullish drivers such as the rising euro against the U.S. dollar, the disappointment with Trump trade or a correction in the stock market. However, the last two of Goldman Sachs’ reasons are really absurd. Neither consumption of gold (including central bank purchases) nor mining supply drives the price of the yellow metal). And even low returns on U.S. stocks – unless the company sees a stock market crash – wouldn’t necessarily be enough to trigger a rally in gold.