New York investment bank Goldman Sachs is raising its price target for gold while sounding the alarm about risks to the U.S. dollar.
In a note to clients Tuesday, the bank reaffirmed its position of gold being "the currency of last resort" amid uncertain economic conditions, raising its price target for gold to $2,300 per ounce after a surge to record levels earlier this week.
The bank tied the metal's rally to a "potential shift in the U.S. Fed towards an inflationary bias against a backdrop of rising geopolitical tensions, elevated U.S. domestic political and social uncertainty and a second wave of Covid-19 related infection."
"Combined with a record level of debt accumulation by the U.S. government, real concerns around the longevity of the U.S. dollar as a reserve currency have started to emerge," the note explained.
The current macro environment could impact the dollar's status as the world's reserve currency, according to Goldman. Indeed, the bank said that debasement risk is growing as a result of the mounting debt built up by policy makers seeking to combat the economic impact of Covid-19. The combination of debasement risk and piling debt "sows the seeds for future inflationary risk."
"Gold is the currency of last resort, particularly in an environment like the current one where governments are debasing their fiat currencies and pushing real interest rates to all-time lows," the bank said. "With more downside expected in U.S. real interest rates, we are once again reiterating our long gold recommendation from March."
Year-to-date, gold has gained more than 27% and is currently trading near $1,940 an ounce.