Dear gold bulls, we have some terrible news. Goldman has just raised its price target on gold.
Why is this bad news? Because with Goldman's infamous track record of getting every trade recommendation wrong, it likely means that gold will be trading in the triple digits in no time. Recall that just four months ago we rejoiced when the same Goldman went short gold (when it was trading at $1205)...
... which facilitated gold's prompt surge to over $1300, forcing Goldman to close out its short at a loss two months later.
As a result when we read just moments ago that the same Jeff Curries has now flip flopped, and is urging Goldman clients to buy gold...
... we are now certain that the next big move will be lower.
This is what Jefferies Currie, who made about 5 appearances on CNBC following his sell gold reco to bash the previous metal before finally getting stopped out at a 7% loss, said in a just released gold urging Goldman clients to start buying gold (we do wonder how many times this newly reborn "gold bull" will be invited to the Comcast subsidiary).
A stronger dollar and lower treasury yields in response to last night’s vote by Britain to leave the EU have driven gold prices higher and industrial commodity prices lower, bringing commodity markets back near levels where they were last week when ‘leave’ was favored in the polls. As the fundamental impact on industrial commodities of a leave vote is expected to be extremely small, this price action is consistent with our view of a stronger dollar putting downward pressure on commodities despite supportive fundamentals in some key markets like energy. In fact, prompt Brent time spreads have tightened modestly in this down move, emphasizing the macro nature of this sell off. Although the forward outlook is more uncertain under a ‘leave’ vote, much of the knee-jerk downside risks have likely been priced in relative to pre-vote expectations of a ‘leave’ outcome, i.e. a c.10% decline in the GBP. Even though much of the direct macro linkages have likely been priced in, second-round spillovers, i.e. other central bank reactions, could pose further downside risks. However, as the spillovers into the US rate markets and the flight-to-safety sentiment are likely to be more persistent, we are raising our gold price targets.
In gold, the sharp rise in prices has been entirely consistent with the move in US 10-year treasury yields, as the Fed Funds market has pushed a US rate hike now into 2018. While a leave vote creates upside in gold prices, we believe much of the upside should be in gold denominated in GBP and EUR given the more profound impact that the vote has on Europe. Nonetheless, the spillovers from Europe into the US rate markets does suggest a more sustainable impact on US rate markets as suggested by our rates strategists and accordingly, we are raising our gold price targets to $1300/toz, 1280/toz and $1250/toz on a 3/6/12 month basis from $1200/toz, $1180/toz and $1150/toz respectively. We also upgrade our year average forecasts to $1260/toz, $1261/toz and $1250/toz from $1202/toz, $1150/toz and $1150/toz for 2016/17/18 respectively. However, the ultimate trajectory will depend on the intensity and duration of the uncertainty shock created by the leave outcome and any potential revisions to the US growth outlook, both of which remain highly fluid in the current context.
In other words, "the ultimately trajectory" of the upcoming gold plunge will depend on how long Goldman seeks to offload its own gold to clients, before sending the metal crashing and starting from scratch.