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, 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.

Election uncertainty also a boost

The MMT influence adds a new wrinkle.

Sprogis pointed out that even the threat that MMT could find more friendly quarters in the halls of Congress and even the White House could cause a run to gold. Presidential candidate Sen. Bernie Sanders is a MMT acolyte as are multiple other high-profile progressives including Rep. Alexandria Ocasio-Cortez of New York. Previous debasement scares, like the beginning of quantitative easing in 2008, triggered inflation fears that turned out to be unfounded but were beneficial for gold.

In addition to the influence of MMT talk, Goldman’s bull case also cites gold’s use as an asset not correlated to other asset classes like stocks, and as a place that could provide more reliable returns than bonds.

There’s also the matter of the 2020 election, which could see substantial market turbulence as Americans weigh President Donald Trump against his Democratic rival.

“High political uncertainty due to continued trade tensions and the approaching US elections should also be supportive gold in 2020,” Sprogis wrote. “This uncertainty may be one of the reasons why we see evidence of a non-ETF vaulted gold build, as high net worth individuals may want to store gold outside the financial system.”