The cycle for gold prices, which climbed for 12 straight years, has probably turned as the recovery in the U.S. economy gathers momentum and investment holdings collapse, according to Goldman Sachs Group Inc., which reduced forecasts for the metal.Downside Risks and QE Uncertainty
The bank cut its three-month target to $1,615 an ounce from $1,825 and lowered the six- and 12-month forecasts to $1,600 and $1,550 from $1,805 and $1,800. Goldman reversed an assumption exchange-traded products holdings will expand in 2013, analysts Damien Courvalin and Jeffrey Currie wrote in a Feb. 25 report.
Soros Sells
Billionaire investors George Soros and Louis Moore Bacon cut their stakes in gold ETPs last quarter, while John Paulson maintained his share, government filings showed this month. Global holdings reached a record 2,632.5161 tons on Dec. 20.
Gold futures fell to $1,554.30 on Feb. 21, the lowest since June 29, after minutes from the U.S. Federal Reserve’s January meeting showed debate over the pace of asset purchases.
“Our economists believe that the downside risks to their forecasts have diminished while the uncertainty about the size of QE3 is high,” the Goldman report said. “We believe that a shift has occurred over the past few months with conviction in holding gold waning quickly.”
In contrast to the opinion of Goldman, I would like to note there is little uncertainty about QE. Bernanke is insanely committed to the idea.
In regards to downside risks to the economy I will also take the other side.
Downside Risks
- The 2% payroll tax hike is going to take a far bigger bite out of the economy than most think.
- The "sequester effect" will be small, yet larger than most think
- Europe is an absolute basket case and will get worse
- China is slowing down and overheating at the same time from an inflation standpoint (See China Overheating? Biggest Weekly Cash Drain in History; Questions Surface Over Chinese Growth Numbers)
- Global rebalancing in general is not off to a good start
- US budget cuts are anemic and far more should come. The only upside is if none come, and that effect would be a temporary sideways push because more stimulus is not in the cards, even if needed.
It is incredulous for Goldman to state diminished downside risks.
Gold Action
With Soros and others selling, and with Goldman (and/or JP Morgan) likely front-running the trade by shorting futures at illiquid times, perhaps we have already seen the bottom at $1554.
Unlike others who believe gold is constantly manipulated lower, I believe manipulation is equal in both directions. Look at it this way: In contrast to what GATA says, Goldman and JP Morgan do not care which direction gold (or silver) is going, only that they make a profit by front-running the surge in volume.
After a rebound in price, expect Goldman to change its forecast again, telling everyone why they should buy gold. This is the way Wall Street parasites work (even if in this example I am early with this forecast).
A quick check now shows gold has already rebounded to $1616, up $30 on the day. Where to from here? I don't know, but with Soros and other big sellers out of the way, and with Goldman and other market makers front-running the trades lower, I like my chances here, quite a lot.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
