Yesterday, Goldman was stopped out of its inflationary Long Brent reco for a 15.5% loss (for the clients of course, not for the Goldman counterparty traders who made 15.5%). Today, it was time for Goldman to get stopped out on its Commodity Carry Basket, after the firm's 6.0% stop loss was triggered: "Spillover from gold and renewed European and EM macroeconomic concerns also created sharp sell-offs in crude oil and base metals, that were mostly front-end driven, crushing spreads (the carry), as longer-dated prices remained remarkably stable. This stopped us out of our CCB (Commodity Carry Basket) recommendation with the potential loss reaching our 6.0% stop." With gold now trading below the revised stop out target, we will watch to see if Goldman lower its target once more to buy even more paper gold that its clients are furiously selling.
But ironically, while goldman was closed out on its various broader baskets, the firm refuses to cover its gold short from just a week ago, and instead it has lowered its gold price target from $1450 to $1400. Why: because it wants its clients to sell it some more gold please. Much more if possible.
Although gold has now traded below the $1,450/toz target embedded in our short recommendation, we are maintaining our short as we argued last week that prices could decline more than we initially thought as positioning is stretched and the momentum is to the downside. The most recent ETF holdings showed acceleration in the liquidation of length, which points to a broad-based sell-off extending beyond the futures markets with potentially more room to go. As a result, we are now lowering the stop to $1,400/toz (which locks in a potential gain of 12%) while we wait for evidence of a bottom, though we are not changing our price forecasts now.
And the firm's explanation for the gold tumble? All Cyprus' gold sale (so Goldman's ECB Draghi's) fault:
Over the previous five years the two highest conviction trades in the commodity complex were being long gold in response to the debasing actions of central banks around the world and short natural gas in response to the shale revolution. These two trends have now likely reversed (see Exhibit 1) and our conviction in these new trends has risen significantly over the past month as we have introduced both short gold and long natural gas trading recommendations.
Further, these shifts in trends represent a significant departure from the past decade and are implicitly interrelated. The shift in gold represents a more confident economic environment where there is a flicker of light at the end of the tunnel to this period of easy money while the shift in natural gas represents the ability for trend natural gas consumption in the US to near 3.0%. This underscores how the shale revolution has helped shape the improving economic environment in the US – making US natural gas and the US economy the new safe haven.
This past week saw both of these trends accelerate with the extremely large gold move likely being triggered by growing fears that the central bank of Cyprus would sell its gold reserves, potentially triggering a larger monetization of gold reserves across other European central banks. The decline in prices was further exacerbated by the breach of a well-flagged key technical price support level at $1,530/toz and then at the $1,434/toz 200-week moving average, creating the largest one day price decline since the inception of the COMEX. Although gold has now traded below the $1,450/toz target embedded in our short gold recommendation, we are maintaining our short recommendation, as we argued last week that prices could decline more than we initially thought as positioning is stretched and the momentum is to the downside.
The most recent data on ETF holdings from last Friday (April 12) showed acceleration in the liquidation of length, which points to a broad-based sell-off extending beyond the futures markets with potentially more room to go (Exhibit 2). Accordingly, we are now lowering the stop to $1,400/toz (which locks in a potential gain of 12%) and waiting for evidence of a near-term bottom to establish a new target; however for now, we are not changing our price forecasts.
Once again: who is buying when Goldman's clients are selling (to Goldman)?