In a day when gold is surging to the highest level since the Trump election, what better way to hedge what happens next than to issue two separate price targets. We bring this up, because that's precisely what Goldman Sachs did today.
First, in a note discussing the relative merits of gold as a "currency as a last resort", and which eyed the suitability of the yellow metal as a hedge to an escalating North Korean crisis (discussed earlier), Goldman's chief currency strategist, Jeffrey Currie issue the following trade recommendation:
In coming months, the unfortunate aftermath of hurricane Harvey suggests that Washington is going to have to overcome their differences, pass spending bills, try harder to avoid a government shutdown and pursue infrastructure projects sooner than later. Our economists believe the probability of a government shutdown has declined further from their prior assessment of 35% and now put it at around 15%. As a result, we are maintaining our end-of-year gold price forecast of $1250/toz barring a substantial escalation in North Korea.
So on one hand Goldman is expecting a drop of nearly $100 in the coming three months. Fair enough, Goldman's bearish bias on gold has been duly noted on these pages in the past.
What, however, makes Goldman's stance confusing is that just a few hours after the Currie report was released, Goldman's chief technician issued an analysis which concluded something completely different.
In her daily "Today's Top Tech" report focusing on precious and base metals, Goldman's Sheba Jafari writes that "Gold, Silver and Copper are all three showing potential to continue higher" and adds that "Gold and Silver have targets in the area of 1,375-1,380 and 18.97." And some more details:
Gold Weekly – Currently above the top of a multi-month range that has been in place since April. The next big level in focus is 1,375-1,381. This includes an equality target from Dec. ’16, previous highs from Jun. ’16 and 38.2% retrace since ’11. Bottom line, the area around 1,375-1,380 will likely be critical. At this point, it seems reasonable to watch for signs of a top if/once reached. It’s also important to treat pullbacks as corrective/counter-trend. It’s not uncommon for these types of advances to develop in waves of three. The first big pivot support should be down at 1,300-1,296.
The report's conclusion on what gold will do next: "Biased higher. Target/turn neutral at 1,375-1,380. Add on pullbacks towards 1,300 and not below 1,296"
And that, ladies and gentlemen, is how you hedge your "recommendations" perfectly: should the gold surge continue, Goldman's technicians can pat themselves on the back for another correct prediction. Should gold tumble in the coming months, however, then Goldman's fundamental commodity team can claim it was right all along, and gold did precisely as Goldman said it would.
The only question we have is how will gold reach Goldman's "fundamental" target of $1,250 if Goldman's clients do as Goldman's technicians recommend and buy gold on any pullbacks lower toward $1,300...