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Goldman Bullish On Gold, 3 Month Price Target Of $1785

Tyler Durden's picture




 

Back in February, shortly before the big sell off in gold we warned that we have some "Horrible News For Goldbugs - Paulson Is Bullish On Gold Again." We may have some bad news again, as the 'bullish' sentiment this time comes from none other than the muppet master, after Goldman released a note overnight saying that "gold is set to glimmer as growth tarnishes." To wit: "We reiterate our constructive outlook for gold prices in 2012 and our 3, 6-and 12-mo forecasts of $1,785/toz, $1,840/toz and $1,940/toz, respectively. We acknowledge, however, that continued strong US economic data poses growing risk to our forecast for rising gold prices. Net, we reiterate our view that at current price levels gold remains a compelling trade but not a long-term investment, and we continue to recommend a long position in Dec-12 COMEX gold futures." Yes, that's great - we have only one word: Stolper That said, the only saving grace to an all out wipeout is that Goldman appears quite set on getting QE at all costs, potentially as soon as April - a move which would send the metal soaring as the Chairman can not have his cake and eat it too, absent a few helping hands from the CME of course.

Back to the GS note, it can be summarized as follows:

Long Gold: Buy December 2012 COMEX Gold (initial value of $1,800.5/toz, current gain $318.3/toz)

 

While gold prices have returned to trading with a strong inverse correlation to US real rates since late December, at sub-$1,700/toz they remain below the level implied by the current 10-year TIPS yields. We believe that despite last fall’s decline in 10-year TIPS yield to -15 bp, the gold market may have been expecting that real rates would soon be rising along with improving economic growth, leading to a sharp decline in net speculative length in gold futures. Accordingly, a simple benchmarking of real rates to US consensus growth expectations suggested a level of +40 bp by year end. In our modeling of gold  prices to real rates, this higher level of real rates would be consistent with the current trading range of gold prices. As we look forward, our US economists forecast subdued growth and further easing by the Fed in 2012, which should push the market’s expectations of real rates back down near 0 bp and gold prices back to our 6-mo forecast of $1,840/toz. Consequently, we continue to recommend a long gold position.

None of this is at all new or surprising. What little informative value is here, is in Goldman's overview of the reasons for gold's plunge last December.

The December European funding shock may have further depressed gold prices

 

While this shift in real rate expectations helps explain most of the decline in gold prices last fall, the sharp decline in gold prices to $1,540/toz in the second week of December stands out as significantly below the level implied by the market’s expectation of higher real rates. From a news flow perspective, the most apparent catalyst was the disappointing European Summit. From a positioning perspective, this move coincided with a sharp decline in COMEX net speculative positioning with ETF gold holdings and real rates little changed. Finally, this move lower was likely exacerbated by prices trading through their  200 day moving average.

 

The most striking feature of this sell-off was the collapse in front month gold lease rates a couple of weeks earlier, which was likely driven by demand for US dollars from European banks. Late last year, the appetite for European banks in the US$ bond market was very low, so banks had to swap their € debt into US$ in order to get US$ funding, creating a significant supply/demand imbalance, as observable from the widening of the €/US$ cross currency basis swap. Similarly with gold, this demand for US$ funding reportedly led banks to offer physical gold in the swap market and bid gold forwards to hedge. These flows mechanically led to a steepening of the contango of the gold forward curve, and a sharp decline in the gold lease rate which is the spread between LIBOR  and the gold forward rates.

 

Although this large move in the gold lease rate preceded the sharp sell-off in gold prices, the link between both moves is not obvious. Higher gold forward  rates offered an arbitrage opportunity between physical gold and future prices as investors could capture the gold forward rate by initiating long physical gold positions (via ETFs for example) and selling COMEX gold futures against them. The price impact of this arbitrage would, however, likely be limited since it involves both a long and short gold position.

 

What is striking, though, is that the ECB’s aggressive actions to ensure liquidity to European banks, especially the LTROs, have broadly coincided with shifts in gold positioning. Gold prices returned to trading with a strong negative correlation to US 10-year TIPS yield soon after the first LTRO in December. Further, front month gold lease rates increased sharply after the second LTRO at the end of February, to reach their highest levels since last August. We therefore expect that the normalization in the gold lease rate that took place earlier this month will be key to assessing whether the December funding stress of European banks generated an additional de-rating of gold prices. Should that be the case, we would expect additional near-term support to COMEX gold prices.

And while Monday morning quarterbacking is great, this is basically a three month delayed retelling of precisely as we said back in December when contrary to everyone else, we said that rising gold lease rates indicated a bottom in gold. Sure enough, they did.

More importantly, Goldman is now selling gold to muppets. Be warned.

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Wed, 03/28/2012 - 08:06 | 2296764 The Swedish Chef
The Swedish Chef's picture

Broken clocks... When you spew out recos like GS does, you´re bound to be right some time. 

Wed, 03/28/2012 - 08:09 | 2296775 Colombian Gringo
Colombian Gringo's picture

Goldmans buying = time to sell :-)   Just kidding.  Even the GS criminals/liars/thieves can be occasionally right.

Wed, 03/28/2012 - 08:12 | 2296783 GetZeeGold
GetZeeGold's picture

 

 

Welcome to the GS mindscrew.........think we're kidding muppets?

 

Wed, 03/28/2012 - 08:16 | 2296794 SilverTree
SilverTree's picture

Goldman Bullish On Gold, 3 Month Price manipulation Target Of $1785

 

^fixed^

Wed, 03/28/2012 - 08:32 | 2296837 francis_sawyer
francis_sawyer's picture

Oh good!... Now it looks like I'll be able to buy some at $1500... I'll start averaging in when they hit their 'stop-loss'...

Wed, 03/28/2012 - 08:42 | 2296857 knukles
knukles's picture

No worry, you'll get Stolpered out on the trade.

Wed, 03/28/2012 - 09:05 | 2296926 WhiteNight123129
WhiteNight123129's picture

Whatever they say, people buying Physical precious metals are just UNWILLING TO SPECULATE BY HOLDING THE US DOLLAR. I mean GS is kidding who? That the Gold trade is speculative, how about holding 30 treasuries at 3.5% YTM, is that the mother of all Bubble and speculation or what? What is the present value in commodities of that Bond? 30 cents on teh dollar of the traded value. And GOld in USD is speculative at the current ratio of M3 of 3%? Please, GS sod off.

Wed, 03/28/2012 - 10:00 | 2297080 The Big Ching-aso
The Big Ching-aso's picture

 

 

Goldman sez 2 buy gold?   More like Soldman sez 2 sell gold so they can buy it cheaper.

Wed, 03/28/2012 - 11:43 | 2297449 Bananamerican
Bananamerican's picture

Now if we can just find out what the mafia had to say about POSX this morning, we'll be set....

Wed, 03/28/2012 - 14:52 | 2298138 CIABS
CIABS's picture

The best part is the $1940 target!  Less than one percent above the all-time high.  What happens then?  It's like they're telling us that the cartel will come in right when the all-time high is surpassed.  They won't concede $2000, they'll continue to defend against it.  Wow.

Wed, 03/28/2012 - 08:20 | 2296809 LongBalls
LongBalls's picture

How will the government fund its $1T plus deficit again? WHO CARES WHAT GS THINKS IF YOUR NOT PLAYING LEVERAGE. Buy physical amounts that price swings have no chance of shaking your long term belief and tune out the noise.

Physical gold is not meant to be day traded. If you want to trade play the inverse action or buy AAPL. What ever...it's your choice.

Wed, 03/28/2012 - 13:21 | 2297771 smiler03
smiler03's picture

I agree, trading in physical would be a pain in the ass but day trading in paper is easy. The market is so volatile it's difficult to lose money.

Goldbugs will of course disagree as they think paper is evil and guaranteed to turn to shit overnight.

Wed, 03/28/2012 - 10:24 | 2297143 A Nanny Moose
A Nanny Moose's picture

No doubt the vampire squid and its Skynet algo minions troll ZH, and are aware of their contrarian indicator status

Wed, 03/28/2012 - 08:18 | 2296798 EscapeKey
EscapeKey's picture

No, Goldman's opinion = noise. If there was any kind of statistical convergence whatsoever, right or wrong, then people could use it for trading purposes.

This is just an opinion pulled out of someone's arse.

Wed, 03/28/2012 - 10:32 | 2297161 Sudden Debt
Sudden Debt's picture

but the guy who felt like writing the memo got 10 million just for doing so...

 

Wed, 03/28/2012 - 08:26 | 2296820 MassDecep
MassDecep's picture

It's not a matter of if GSucks is wrong with their predictions, it's a matter of what they do to create an outcome. It's a matter of massive manipulation of your money and theirs. They have the means of doing what they please for the time being. ..for the time being....

Wed, 03/28/2012 - 08:36 | 2296844 francis_sawyer
francis_sawyer's picture

Goldman doesn't give a shit about a recommendation on gold (because they're probably convinced "muppets" only think in terms of PAPER GOLD)...

Wed, 03/28/2012 - 08:41 | 2296855 Rudeger
Rudeger's picture

Kiss o death!!!!!!!!!!!

Wed, 03/28/2012 - 14:55 | 2298157 RollinsArline3
RollinsArline3's picture

my classmate's sister makes $67/hour on the laptop. She has been without a job for 6 months but last month her pay was $20212 just working on the laptop for a few hours. Read more on this web site .....  http://lazycash9.com

Thu, 07/12/2012 - 14:34 | 2610623 augustusgloop
augustusgloop's picture

goldman = cretan liar

goldman <> market signal one way or the other

Wed, 03/28/2012 - 08:21 | 2296789 tallen
tallen's picture

Unfortunately with Goldman's clock, the hands have fell off. They are never right.

 

I know it seems wrong, but short gold. Sell a few GC futures or short the ES. It's about time that risk assets started taking some pain.

Wed, 03/28/2012 - 08:20 | 2296806 Stoploss
Stoploss's picture

1000 DUST aquired.

 

This has got Stopler written all over it.

Shit, i didn't even need to get past the headline on that decision.

Wed, 03/28/2012 - 10:19 | 2297130 MarcusLCrassus
MarcusLCrassus's picture

Well they have 14,000 VPs.  So they could have just 10% of these jagoffs saying (blank) is going up, and another 10% saying it will go down and they still have over 11,000 assholes who they can have take a new position on the issue when they need to. 

Wed, 03/28/2012 - 08:06 | 2296765 Jedi Longsabre
Jedi Longsabre's picture

I was about to buy some more gold. Oh well there goes that idea!

Wed, 03/28/2012 - 08:06 | 2296767 Ghordius
Ghordius's picture

I'm still not sure if the gold price is not going to crater this week (buying opportunity for me, of course) but of one thing I'm sure it will go up - eventually. Meanwhile, I'd be happier if the Holy Vampire Squid would not write so many comment on the metal... creepy...

Wed, 03/28/2012 - 08:08 | 2296768 cat2
cat2's picture

Tickle me Goldman

Wed, 03/28/2012 - 08:08 | 2296769 GeneMarchbanks
GeneMarchbanks's picture

'More importantly, Goldman is now selling gold to muppets. Be warned.'

Or, now that muppets know the game and expect this, they are buying aggressively? Or... did I just Marijuana Think myself into a labyrinth?

Wed, 03/28/2012 - 08:12 | 2296785 Zero Govt
Zero Govt's picture

easy to do as you never know if the shills are bluffing or double-bluffing

Conclusion: ignore the news (shills) 

Wed, 03/28/2012 - 08:14 | 2296788 LongSoupLine
LongSoupLine's picture

 

 

hmmm, if they know that I know what they know, then they know I know what to do, which means they know what they say is expected to be contrarian.

Wed, 03/28/2012 - 08:46 | 2296861 Confundido
Confundido's picture

Kind of rock, paper, scissors...right?

Wed, 03/28/2012 - 08:08 | 2296770 Mae Kadoodie
Mae Kadoodie's picture

No, never "a long term investment".

Wed, 03/28/2012 - 08:08 | 2296772 LongSoupLine
LongSoupLine's picture

and on that note, gold down premarket.  gasp...

Wed, 03/28/2012 - 09:09 | 2296936 Rip van Wrinkle
Rip van Wrinkle's picture

It's down every day pre-US market

Wed, 03/28/2012 - 08:09 | 2296773 icanhasbailout
icanhasbailout's picture

is that their own position, or the position they want the muppets to take?

 

Wed, 03/28/2012 - 08:16 | 2296791 GetZeeGold
GetZeeGold's picture

 

 

Well gosh......maybe......then again.

 

ARRRGH.......I don't know!!!!

 

Crap......this is just way too much pressure.

 

Wed, 03/28/2012 - 08:30 | 2296833 mayhem_korner
mayhem_korner's picture

is that their own position, or the position they want the muppets to take?

 

Yes.

Wed, 03/28/2012 - 08:33 | 2296840 tabasco71
tabasco71's picture

don't do what goldman says, do what goldman does...

Wed, 03/28/2012 - 08:46 | 2296862 spinone
spinone's picture

they know that we know that they know we're muppets, so that means when they say to buy it really means to sell because..

 

Wed, 03/28/2012 - 18:26 | 2298908 Uchtdorf
Uchtdorf's picture

I know that you believe you understand what you think Goldman says, but I'm not sure you realize that what you heard is not what they meant to be taken as an indicator of future performance.

Wed, 03/28/2012 - 08:09 | 2296776 Hmm...
Hmm...'s picture

Gold hasn't been outperforming when "growth is tarnished".

Gold has done well when there is uncertainty and fear in the market, or when there are concerns about printing.

Stocks have also done quite well when there are concerns (or hopes) for printing, but not when there is fear in the market.

I still find it disturbing how closely gold has tracked stocks the last year.

and I am still one of the only people who ever post here who is significantly upside down on Gold.  oh well, it's just insurance anyway.

Wed, 03/28/2012 - 08:16 | 2296796 LongSoupLine
LongSoupLine's picture

I still find it disturbing how closely gold has tracked stocks the last year.

 

I still find it disturbing how closely paper gold has tracked stocks the last year. - fixed it.

Wed, 03/28/2012 - 08:56 | 2296891 Hmm...
Hmm...'s picture

Perhaps.

but the last few times I bought Physical (I use Tulving) the price of physical is basically the price of paper. (+/- negligible amount).

Will that always hold?  Probably not, there is a high possibility that the paper market will "break".   But I've been hearing about immenent crash in the paper markets for a lonnnnnggggg time now.  The manipulators clearly have a strong hand.

If you would have asked me in 2006 "would bankers get record bonuses after the coming financial crash?"  I would have said "no".  and yet here we are.

Likewise: I have no idea what will happen if/when the paper gold market crashes.  Those who will stea from me are powerful, and not to be taken lightly.

Wed, 03/28/2012 - 13:27 | 2297792 smiler03
smiler03's picture

LongSoupLine

"I still find it disturbing how closely paper gold has tracked stocks the last year. - fixed it."

You should try comparing physical backed paper gold to physical gold. Maybe they don't correlate with US Gold ETFs but they certainly do with UK Gold ETFs.

But you think paper is evil and will turn to shit overnight. So junk me please if you haven't already.

Wed, 03/28/2012 - 08:10 | 2296777 Christoph830
Christoph830's picture

Doesn't it make you guys uneasy when you see all these mega banks touting gold? Sure doesn't make me feel comfortable. After all, we fade them when theyre bullish on equities, why would this not apply to commodities?

Unrelated rant: Obamacare Supreme Court hearings. Has there been a more blatant "fix" in history. The Solicitor General's performance yesterday would make the 1919 White Sox proud. This is a guy who has presented briefs 17 times in front of the court And yet he was reduced to a bumbling amateur idiot yesterday by SOFTBALL questions regarding the individual mandate that he had MONTHS to prepare for. This is all Obama's plan to portray Romney in a worse light. New World Order is really in a groove right now: Obama/Medvedev lovefest, Chinese "coup", strategic petroleum reserve release, heightened xenophobia in both US and France right before elections, I could go on and on.

Wed, 03/28/2012 - 08:12 | 2296781 tallen
tallen's picture

Time to short everything then. Thanks Goldman.

Watch it be another -$50 day for gold today.

Wed, 03/28/2012 - 08:39 | 2296848 tabasco71
tabasco71's picture

I know... its down $15 already just on the release of that article.

Mind you, end of the month always dips quite far - did in Feb and Jan too if I remember rightly

Wed, 03/28/2012 - 08:12 | 2296784 RoadKill
RoadKill's picture

All the anti-Goldmanites better sell then.

Ohh. I guess Goldman is only ALWAYS wrong when they disagree with you.

Wed, 03/28/2012 - 08:14 | 2296787 The Swedish Chef
The Swedish Chef's picture

 

Or perhaps they looked at how small market PMs is in comparison to stocks and bonds and thought: "Hey, lets make a correct call on this puny investment and have the muppets think we´re spot on. Then we tell them to buy *insert crappy equity*, sell them our holdings of the same and make a killing"....

 

Wed, 03/28/2012 - 08:16 | 2296793 akuacumen
akuacumen's picture

Goldman, why did you have to do this? Ultimate mindf**k.

Wed, 03/28/2012 - 08:16 | 2296795 the not so migh...
the not so mighty maximiza's picture

holly shit , Gold takedown incomming.

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