Goldman Sachs: Short Gold! (Apr 2013)

gold_silver

Source: Wall Street Journal – Goldman Sachs: Short Gold!

Notable excerpts:

Goldman Sachs is chasing gold to the downside.

With the precious metal inching closer to a bear market, the firm tells clients that now’s the time to short gold.

Goldman slashed its short- and long-term gold forecasts, a move that comes about six weeks after the firm had already turned even more bearish on the metal. Goldman now sees gold ending the year at $1,450, a forecast that came down from $1,600 at the end of February and $1,810 prior to that.

Goldman sees gold falling to $1270 by the end of 2014.

“We see risks to current prices as skewed to the downside as we move through 2013,” Goldman analysts Damien Courvalin and Jeffrey Currie told clients. “In fact, should our expectation for lower gold prices continue to prove correct, the fall in prices could end up being faster and larger than our forecast.

While we may be end up too early in entering this trade, we prefer that to being late given our belief that the skew to current prices is to the downside,” they added.

Comex gold prices recently fell 0.6% to $1,577.80. Gold is down 16% from its record settle high of $1,888.70 hit in August 2011. A decline of at least 20% from a recent peak is considered a new bear market.

The bank cut its three-month view on gold to $1,530 an ounce from $1,615. It also dropped its six-month forecast to $1,490 from $1,600 and its 12-month gold outlook to $1,390 from $1,550.

Gold is often considered a refuge from economic uncertainty and a means of safeguarding wealth. It’s also viewed as an inflation hedge. Considering the Fed has been buying $85 billion a month in Treasurys and mortgage-backed securities in an effort to spur the economy, one would think the precious metal would do well in this type of environment.

But as questions continue to arise about when the Fed will start pulling back on its stimulus efforts and easy money policies, traders have been selling now and asking questions later. FOMC minutes released Wednesday morning showed Fed officials are actively engaged in a debate about whether to begin winding down an $85 billion a month bond buying program in the second half of the year.

Goldman points out worries about Cyprus and weaker-than-expected economic data normally would’ve pushed gold prices higher, as the precious metal has typically behaved as a safe-haven play.

But that hasn’t been the case recently.

“Despite resurgence in euro area risk aversion and disappointing US economic data, gold prices are unchanged over the past month, highlighting how conviction in holding gold is quickly waning,” the Goldman analysts say. “With our economists expecting few ramifications from Cyprus and that the recent US slowdown will not derail the faster recovery they forecast in 2H13, we believe a sharp rebound in gold prices is unlikely.”

By the end of March, gold had dropped 10% in six months and suffered back-to-back quarterly declines for the first time since 2001.

Prices have fallen further so far in April. The decline may be far from over, Goldman says.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s