Goldman Goes Gaga Over Cyclical Commodities, Says Gold Run Is Ending As QE2 Comes To A Close (Full Commodity Update)

Tyler Durden's picture

The key catalyst for Goldman's suddenly cautious view on gold (which still has a $1,690 price target): the end of QE2 in June 2011. So, presumably, when QE 3 is announced in May in order to allow the continued monetization of $4 trillion in debt issuance over the next 2 years, that should be very bullish for gold, yes? Irrelevant: Goldman has become just one more glorified Jim Cramer: pumping anything that is green, and dumping anything in which there is even a modest (CME margin hike driven) correction.

From Jeffrey Currie's just released report, "The cyclical commodities join the rally as gold falters."

Consumers: We expect gold prices to continue to climb in 2011 as the resumption of quantitative easing should keep US real interest rates low. However, with the current round of QE set to end in June 2011, and our US economics team now forecasting strong US economic growth in 2011 and 2012, we expect US real interest rates to begin to rise into 2012, likely causing gold prices to peak in 2012. Consequently, we recommend near-dated consumer hedges in gold, but more so in PGMs where recovering global automobile demand will likely continue to put upward pressure on auto-catalyst demand and therefore on platinum and palladium prices.

Producers: While we expect gold prices to increase in 2011, our view that downside risks will likely increase heading into 2012 suggests this is a good time for gold producers to begin scaled up hedging of forward production, particularly for calendar 2012 and beyond.

That said, the firm is still recommending a long gold (and platinum) trading recommendation:

Long Platinum: Buy January 2011 NYMEX Platinum (Current value at $1,818.8/toz; first suggested at $1.611.1/toz; $644.7/toz gain including rolls)

We continue to expect that low real rates and the economic recovery will lend further support to platinum prices. This trade was first initiated in July 2009.

Long Gold: Buy December 2011 COMEX Gold (Current value of $1,349.6/toz; first suggested at $1,364.2/toz; $14.6/toz loss)

We expect gold prices to continue to climb in 2011 as the resumption of quantitative easing should keep US real interest rates low.

And here is the summary outlook/key issues on key commodities:

WTI (target $105.50/bbl):

The decline in US inventories over the past weeks has acted as an upside catalyst which helped to lift WTI prices into our targeted $85-95/bbl trading range. This is consistent with our view that the global oil market has been in a seasonally-adjusted deficit since May, and that we should increasingly see declines in US inventories as floating storage has now discharged and inventories in Europe and Asia have been drawing. In our view, US onshore inventories will continue to decline towards more normal levels over the coming months. However, the US oil market itself has become increasingly fragmented by the high and rising level of oil inventories in the mid-continent. As a result, WTI has been trading at a significant discount to other light sweet crudes, such as Brent and Light Sweet Louisiana (LLS). As the surplus of oil in the US mid-continent is not being driven by weak US demand, it will likely not be alleviated by the ongoing recovery in US demand and require a redirection of pipeline infrastructure to carry crude from the US mid-continent to the US Gulf Coast to correct it. As a consequence, WTI prices could continue to trade at a discount to other local crudes.

Brent (target $103.50/bbl):

Brent crude oil prices have been trading close to $100/bbl over the past days as global inventories continued to decline. We expect that, once global inventories have reached normal levels, OPEC spare capacity will start to be drawn as global oil demand remains strong, which gives some further upside potential to Brent prices in the second half of 2011.

Incidentally, this should make for a great compression arbitrage. If Goldman is even remotely correct, going long WTI and short Brent should generate a substantial IRR.

RBOB (target $2.62)

US gasoline inventory draws and strong demand for US gasoline exports have lent support to gasoline margins in the recent period. Particularly near-dated margins against WTI have been strong, as WTI is again trading at a steep discount to other local crudes such as LLS. However, we continue to believe that ample refinery capacity will keep any rally in margins muted and short-lived.

NYMEX Nat Gas (PT $4.50/mmBtu)

NYMEX natural gas prices have been supported by colder-than-normal temperatures so far this winter, but the underlying balance remains in a deep surplus created by continued growth in shale gas production and a weak economic recovery. Despite a leveling off in production efficiency gains in aggregate US shale gas production, we believe that debottlenecking in well completion services and the impact of high oil prices on gas production economics will spur significant growth in US natural gas production in 2011. We believe that US natural gas prices will have to move lower in 2011 and 2012 in order to curb natural gas production growth, and more importantly, to incentivize further fuel substitution in the power generation sector to rebalance the market. Consequently, we forecast an average NYMEX natural gas price of $4.00/mmBtu in 2011 and $4.25/mmBtu in 2012. Still, even taking into account supply and demand responses to these lower prices, the market remains vulnerable to weaker-than-normal weather-related demand and further positive production surprises, in our view.

LME Copper (PT:$11,000/mt) - better hope the "Cold Fusion" story is a hoax here..

Copper prices broke out to new nominal all-time highs into 2011 on the back of supply disruptions in South America. However, while we have little concern that Chinese end-demand is slowing relative to our forecast, we do believe that current markets are adequately supplied during an abnormal seasonal destocking in China, and therefore it is too early for prices to spike higher. Nevertheless, over the medium to long term, we continue to see greatest upside in copper of all the metals due to the combination of lower exchange inventories, robust demand largely driven by EM urbanization, and a constrained supply outlook. Although exchange inventories remain well-above the critically-low levels that persisted for much of the late 2000s prior to the global financial crisis, we expect the above drivers will be sufficient to deplete these inventories over the course of 2011, forcing the market back into a period of demand rationing  characterized by extreme levels of backwardation. Further, this backwardation will likely come on top of well-supported long-dated prices given the need for investment in new mine capacity to meet rising global trend demand. As a result, we maintain our 12-mo ahead copper price forecast of $11,000/mt and believe that prices could spike substantially above these levels, most likely in late 2011.

Gold (PT: $1,690)

With the US Federal Reserve conducting a second round of quantitative easing and likely keeping its short-term nominal interest rate target near zero through 2011, we expect the low US real interest environment, combined with continued gold-ETF and Central Bank buying will continue to provide support for gold prices 2011. However, with the current round of QE set to end in June 2011, and our US economics team now forecasting strong US economic growth in 2011 and 2012, we expect US real interest rates to begin to rise into 2012, likely causing gold prices to peak in 2012.

Silver (PT: $28.2)

Over the long run, silver prices tend to track gold prices. Thus, our silver forecast reflects the historical ratio to gold.

Cocoa (PT: $2,4000/mt)

Cocoa prices remained volatile over the past month as market focus shifted between the outlook for strong West African production for the new crop year starting October 1 and concerns that political instability in Ivory Coast may disrupt the country’s exports. On the supply side, the latest ICCO forecast for global output points to growth of 6 to 8% while on the demand, the ICCO expects the strong recovery in cocoa grindings of 5% experienced in 2009 to slow to 2.5% in the 12 months ending September 2011. On net, this points to a market surplus for the 2010/11 crop year and we expect lower prices with a 3-mo forecast of $2,700/mt and 6- and 12-mo price forecast of $2400/mt, although volatility may remain high near term on Ivory Coast developments. Over the long term, as demand continues to grow, the production outlook for the Ivory Coast will remain key as aging orchards, poor infrastructure and political instability have curbed production and investment over the past few years.

Much more in the full report:


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Pladizow's picture

So Goldman's buying gold from its clients!

66Sexy's picture

i guess they cant just say "buy all key commodities due to inflation/QE pressures" so they have to dance around and hem and haw the bullshit.


Mark McGoldrick's picture


I am particularly interested in Goldman's view of silver. Their quote:


Over the long run, silver prices tend to track gold prices. Thus, our silver forecast reflects the historical ratio to gold...


On November 28, Eric Sprott said the historical gold/silver ratio is 16:1, which is the exact same ratio proffered by the xtranormal bears on December 2.  Of course, one has to use a 5,000 year chart to extract that ratio, but I'm wondering if Goldman Sachs thinks this 16:1 ratio of gold/silver for the 3,000 years before Jesus Christ is relevant?  If it is relevant, silver should shoot to the moon and Sprott's newly issued PSLV would be a fantastic place to invest.


If you look at a 15 year chart (a little more relevant to our times), gold trades around 60:1 to silver.  That means silver should be in the lower 20's.


Which ratio makes more sense?  The one reaching to 3000BC (the position of Sprott and the cartoon), or a modern 15 year chart that reflects current economies?   Maybe Goldman is using the 15 year chart, plus adding some juice to reflect all the JP Morgue hysteria. 


goldmiddelfinger's picture

If there isn't enough tension in the G/S ratio to take it below 40/1 now, it would seem unlikely to take it much lower in the near future. Plenty of silver in the ground sees daylight over $20 especially in the emerging market economies which have ample resources, e.g. Mexico, Argentina, Chile.

Stormdancer's picture

Yassuh boss thas right!  Ya jes flips a switch on the back side of some third world desert and BAM! 2000 tonnes of silver get added to global mine production!  Sheeeeeeeit...jes flips two switches if ya wants 4000 tonnes.  Easy peasy lemon squeezy!

Mark McGoldrick's picture

My point - which may have been missed in sarcasm - is that the 16:1 ratio is fucking ludicrous.  Do you actually think the gold/silver ratio from 3000 years before Jesus Christ has any relevance to Comex traders tomorrow? For Sprott (and the extranormal bears) to reference it is unbelievably disingenuous. 

The 15 year ratio doesn't matter much either, but it certainly is more relevant than gold/silver pricing dynamics from days when the first wheeled vehicles were rolling. 

NOTW777's picture

extremely lazy analysis even for GS

Farcical Aquatic Ceremony's picture

In their defense, history has shown that many who achieve absolute power end up bored, crazy and syphilitic.

Turd Ferguson's picture

Exactly, Plad.

If there was any doubt that we are now at the bottom of this current correction, this little nugget should remove it.

etrader's picture

Thx for posting that.... :-)

Bows head in shame after posting, we don't get as many full notes these days on CD's beautifully written but  mammoth piece.... ;-)

walküre's picture

Over the long run, silver prices tend to track gold prices. Thus, our silver forecast reflects the historical ratio to gold.


Gold $1690 and Silver $28.20 and they speak of historical ratio?


Goldman Sachs is not welcome in Iceland, Ireland, Greece, Tunisia, Algeria .. and counting.


The cabal is on its death bed. Put a fork in her, she's done!

chet's picture

There will be a QE3.

The deficit IS the economy.

QE IS the deficit.

There will be a QE3.

walküre's picture

The debt problem isn't going away.

Monetizing more debt to pay the interest on existing debt...

Rubber meets road. Shit hits fan. Mountain of funny money vs. increased demand for finite commodities.

Imagine, there's an exchange and nobody participates because the sellers and buyers are trading elsewhere.

Call it black market, call it alternative exchange. It's coming.

chet's picture

I agree that it is unsustainable.  But I think they can do at least QE3 if not more before it all blows up.  It will last longer than a lot of people think. 

The easy road of extending and pretending will keep presenting itself.  If you are congressman, putting your neck out there to fight extension of the debt ceiling is hard.  Just being one of the hundreds to vote for it is easy.'s picture

If you are congressman, putting your neck out there to fight extension of the debt ceiling is hard.  Just being one of the hundreds to vote for it is easy.


It's never easy for a man with integrity to do the wrong thing. But you're talking about congressmen, so yeah, I agree with you.

Quinvarius's picture

Finally, GS says gold will underperform.  The last two months of their bullishness has been a hellish waiting perdiod for this rally to continue.  It is good to see they are bullish on copper.  I always thought that rally was bunk.

Spitzer's picture

likely causing gold prices to peak in 2012.

What about that 30 year bond bull market ?

awakened's picture

Can anyone tell me what price over spot I should expect silver coins like maples to run? Currently at APEX it is just over $3.30/oz. over spot for 25  1 oz. coins.  I've never bought the physical so I'm wondering what that spread has traditionally been.

Currently I am doing well with silver, palladium and molydium miners but I'm thinking I would like to own the physical as well. Wish I would have bought silver coin when I first bought the miners.

DaBernank's picture

I usually pay ~$3 over spot per oz. of silver maple.

awakened's picture

is APMEX the best place to buy physical in the US? And does it really matter whether it is a maple, APMEX or other coin? I am not a collector, I just want a bit of a hedge. Thanks for responding.

JohnG's picture

For a large quantity, AMPEX is probably the best.  I use gainesvillecoins (no affiliation) for smaller purchases.

As for coins, I like eagles, but as long as it is easily recognized as bullion it shouldn't matter.  Maples for gold, .9999 and all.

Hope it helps!

JW n FL's picture



Subject: RE: Gainesville Coins



Dear Mr. Castellano,


As you know from the below email, our office has the honor and responsibility of representing XXX. XXXXXXXX We would appreciate confirmation as soon as refunded our client in full.  I am at a loss to understand why you required wire instructions when a credit will suffice.



In any regard, please refund the amount in full promptly and be sure to reply to me that same has been completed.



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Jacksonville, Florida 32217

(904) 448-5552

Fax (904) 448-5653

ILikeBoats's picture

If you have the cash (500 oz. at a time of silver) is significantly cheaper.  Maples are $1.99 over spot and shipping is free.

Downsides: Tulving's site will make your eyes bleed and they only accept wires and checks, no credit cards.

Thunder Dome's picture

Goodnight Gold.  Goodnight Silver.  Goodnight King, Sprott, and Sinclair.  Time for bed. Shhh.  

goldmiddelfinger's picture

Dude, this is ZH. You speak heresy! I'm going to run a stopwatch to see how long it takes for you to get junked twice (that way you know it's not me hitting my own bid)

Exposer of Internet Shills's picture

sniff sniff  I think I found one

awakened's picture

Actually make that over $4.73 over spot price for just 1 roll of 25 coins.

gold mining ceos are idiots's picture

Goldman knows damn well that Martin Armstrong's model calls for a puase into June 2011 and an explosion into 2015, hence the comment on producer hedging.


But as my tag says...they are idiots!!!!!!!!!

TruthInSunshine's picture

The Goldman kiss of death?

"You broke my heart, Lloyd, Jan & The William Dudley (ex-Goldman Partner, now head of the New York Branch of the Federal Reserve, and in charge of gifting POMO commissions of 60 Billion per year to Primary Dealers - like Goldman!)."

goldmiddelfinger's picture

Don't you have some peasant tenants that need caning?

ForWhomTheTollBuilds's picture

According to Denninger's site Obama will use the SOTU speech to announce that the debt and deficit problems will soon be solved.


Of course its a farcical lie.


But if Gold went down today in the face of a lot of otherwise bullish news (Russia attack, Ireland govt collapse), what will happen when the "news" indicates America's total recovery?

Hephasteus's picture

As spanish inquistion posted the other day.

We are arriving at the rapid fire pronouncement of battleship moments.

There will be shoe throwing. Count on it.

goldmiddelfinger's picture

You're going to lose money holding physical gold and silver. You'll have to find another greek god of pagan bullshit to hide behind to crypsis your idenity. May I suggest Proteus?

Hephasteus's picture

Ya ya ya. The chess game is all in play. Huge recovery, check, falling gold price check. Raising interest rates check. The big lie is all set up. Now all you gotta do is jack those interest rates up and hope we don't leave you sitting there pulling on your puts putz. You need to get that Jesus guy off his ass and tell me about these strong delusions he's going to be sending me. Cause the illusion just isn't sticking to me. Must be too much peanut butter in my diet.

Exposer of Internet Shills's picture

How do you lose money holding MONEY??  This is a shill and a half

TruthInSunshine's picture

There is a whisper rumor that Obama is going to claim that the "state of our union is strong," that the economy is recovering nicely, that employment is rising, that small businesses are thriving again, that Iraq and Afghanistan are now stable democracies and massive victories for the U.S., that Gulf Shrimp are perfectly safe to eat and that the the U.S. will see a budget surplus just in time for the 2012 election cycle.

goldmiddelfinger's picture

Somewhere a serf needs discipline

tmosley's picture

Been a bad boy, have you?

I would suggest you join Redneck at the local gay biker bar.

JohnG's picture

In other words, he'll lie his teleprompting ass off, and there will be clapping.

It'll be interesting to see of the SCOTUS is present after last years gaffe.

I'd also like to see Wilson scream "You lie!!" repeatedly until he's removed by the SAA.

Everybody could also just turn thier chairs around while the O speaks, now that would be funny!

Double down's picture

This is good.  I would prefer the attention to gold and silver prices to die down.  Their most stable price advances occur by way of stealth.   

e_u_r_o's picture

what will happen if QE2 ends and it would be told there will be no more QE coming.

damijan's picture

Stock market crashes, PMs crash.

casey13's picture

As Jim Rickards keeps saying.

The fed never said that QE2 would end in June

Just that it would continue at least until then.

gwar5's picture

Only in a perfect world.....

There are too many bubbles, crises, and instability looming globally for any report or predictions to be relied upon.

pitz's picture

Motherfuckers just trying to scare people out of the stuff they're buying.

Al89's picture

Waiting to buy the fucking dip when it comes to Silver and Gold futures and equities. 

goldmiddelfinger's picture

Gold. Gold will br CRUSHED. GS joins the call, late, but joins the call. This won't be bullish. (See "Russia To Increase Gold Holdings By 13% In 2011, Will Buy 100 Tonnes Of Gold Each Year"