Bullish News For Gold?

Goldman Sachs says that gold is poised for a fall in the medium term:

Improving US growth outlook offsets further Fed easing
Our economists forecast that the US economic recovery will slow early in 2013 before reaccelerating in the second half. They also expect additional expansion of the Fed’s balance sheet. Near term, the combination of more easing and weaker growth should prove supportive to gold prices. Medium term however, the gold outlook is caught between the opposing forces of more Fed easing and a gradual increase in US real rates on better US economic growth. Our expanded modeling suggests that the improving US growth outlook will outweigh further Fed balance sheet expansion and that the cycle in gold prices will likely turn in 2013. Risks to our growth outlook remain elevated however, especially given the uncertainty around the fiscal cliff, making calling the peak in gold prices a difficult exercise.

Gold cycle likely to turn in 2013; lowering gold price forecasts
We lower our 3-, 6- and 12-mo gold price forecasts to $1,825/toz, $1,805/toz and $1,800/toz and introduce a $1,750/toz 2014 forecast. While we see potential for higher gold prices in early 2013, we see growing downside risks.

Goldman’s model boils down to this chart, that posits that gold prices are supported by a low real interest rate environment:

GoldvsRealInterestRates

Goldman’s forecast is based on the idea that real rates will rise due to stronger economic growth in the second half of 2013 and beyond.

But the notion of strengthening economic growth in the second half of 2013 and beyond is deeply problematic. The total debt to GDP ratio is still above 350%, far, far far above the historical norm and a huge burden on the economy. The service costs of all that debt (sustained only by Fed liquidity helicopters — without the bailouts and liquidity lines, the unsustainable debt would have all been liquidated in 2008) is keeping the economy (and thus, real interest rates) depressed.

This means that the supposed recovery — and any such attendant dip in gold prices — is extremely unlikely to materialise.

In fact with Goldman’s track record of giving bogus advice to clients and then betting against it, this call could very easily signal that we are on the edge of another seismic upswing in the gold price.

US mint data shows gold demand is strengthening:

20121201_Gold_0

There is history here. Goldman’s previous bearish calls on gold locked their African gold-mining clients into money-lossing derivative deals.

GhanaWeb tells the full story:

In 1998, Ashanti Gold was the 3rd largest Gold Mining company in the world. The first “black” company on the London Stock Exchange, Ashanti had just purchased the Geita mine in Tanzania, positioning Ashanti to become even larger. But in May 1999, the Treasury of the United Kingdom decided to sell off 415 tons of its gold reserves. With all that gold flooding the world market, the price of gold began to decline. By August 1999, the price of gold had fallen to $252/ounce, the lowest it had been in 20 years.

Ashanti turned to its Financial Advisors – Goldman Sachs – for advice. Goldman Sachs recommended that Ashanti purchase enormous hedge contracts – “bets” on the price of gold. Simplifying this somewhat, it was similar to when a homeowner ‘locks in’ a price for heating oil months in advance. Goldman recommended that Ashanti enter agreements to sell gold at a ‘locked-in’ price, and suggested that the price of gold would continue to fall.

But Goldman was more than just Ashanti’s advisors. They were also sellers of these Hedge contracts, and stood to make money simply by selling them. And they were also world-wide sellers of Gold itself.

In September 1999 (one month later), 15 European Banks with whom Goldman had professional relationships made a unanimous surprise announcement that all 15 would stop selling gold on world markets for 5 years. The announcement immediately drove up gold prices to $307/ounce, and by October 6, it had risen to $362/ounce.

Goldman pocketed a shitload of money; clients ended up getting socked in the mouth.

Goldman publicly turning bearish, may be a pretty bullish sign for gold.

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15 thoughts on “Bullish News For Gold?

  1. It is pretty insane that investment firms are allowed to have prop trading departments as well as financial advising departments rolled into one company. Are there any congressional bills in the works to achieve the separation of the two? It should be considered insider trading to trade against financial advice given to clients.

    • There has been a lot of talk about it, but very little action.

      Personally, I will not take any advice from any company that mixes trading and advising activities. To be honest, the best advice is from those talking their book. More skin in the game.

  2. December 3, 2012, at 6:05 pm
    by Jim Sinclair MineSet
    The recent jump in coin sales had to do with the coin public believing there was an error in stamping the recent coin issue. There was, in all of them, making it zero error value.

  3. Let’s say gold goes up to US$10,000./toz. So what? [unless you are into jewelry] Has gold at $1700./toz. meant anything? [as compared with US$200./toz.]

    What’s important is the price of food, energy, clothing, housing, health care, etc.

    • The price of land can be as cheap as 600 per acre. That’s a lot of apartments at 16m2. Price of a 4 metre square hut can be as low as $10,000 including materials and labour and solar/gas cooking. Communal cooking shower can be built for $10-15k.

      The price of necessities can be very low, it depends on the model you use. Of course you are in the wilderness, with no work. It costs a lot more to have the “Urban experience”.

      No wonder 150 years ago Australian Aborigines swapped nuggets of Gold for axes, clothes, food etc. They realised what was truly valuable. To them they were shiny rocks, mere trinkets.

      Gold has no mythical value in Aboriginal “Dreamtime” culture, so Aboriginals were happy to part with it. Therefore it is a relic of the Sun worshipping Egyptians, Gold being a symbol of the sun.

      It is classic demand versus supply that makes Gold a store of value, a medium of exchange.

      With all the Chinese demand, and mining oversupply (Mining has pulled back so projects are on hold, thus freeing labour/equipment costs for Gold explorers/miners) the Gold price has plateaued. Gold will not rise above $1900, but the Yuan will appreciate. It represents a store of value, as the productive capacity of the Chinese is more valuable to the world than Gold.

      • The Chinese government will eventually devalue the Yuan to clear the bad debt. So no, the Yuan is not better than gold. It does not represent a store of value, especially a 2-3 years ago when inflation was running at 10+%. It still is not a safe store of value as it is controlled by a corrupt central government that is bent on saving itself and not the preservation of its money. That last sentence applies to every other currency in the world. So only gold is left.

        You must understand the concept of money in order for u to understand the importance of gold. Advance society requires a medium in which goods can be efficiently exchanged. Unless we all want to be aboriginals bartering our tvs for cans of food, money is VERY IMPORTANT. So lets all be aboriginis, ditch society cause its a fraud, and don’t give a crap about gold.

      • The previous poster makes some poignant remarks. He is correct in stating the Yuan is not as good as gold. It is the same premise when dealing with the Swiss Franc. Theoretically the US Dollar is backed 40% by Gold… that is if all the Gold we claim to have is in Fort Knox, New York, and Chicago.

        You must first understand that true money can not be created by fiat schemes. We would have to be God in order for money to not truly lose value. The only thing that is self-correcting in the world are things not created by man…. therefore NATURE. Now, we could ask what in nature could we use as a reliable source of money that does not wear or tarnish, that can not be easily manipulated or counterfeited, and has the fidelity of all involved (buyers and sellers)? Well, that shortens the answer down to a special case of precious metals. They are the only known elements in the world that do not waste away like other metals and elements. They also have quite interesting industrial applications in addition to its worthiness as money. It has intrinsic value based on the above principles. It can be easily exchange as well. In addition, one can make a storage facility (call it a bank) and that facility can issue debit cards in which you can buy and sell against the value in your account.

        The only true source of money is Gold (and silver). The others are merely currencies…. not money. They are faith and credit based on a system of productivity and monetary balances. They are arbitrary, relativistic if you will. Gold and Silver stand not only the test of time but the application of its uses are literally in everything important in today’s functioning world. They are truth.

        The Founding Fathers supported its idea in the Constitution (to fix the weights and measurements thereof). We as a people of America will only come to realize this importance after our current dollar ponzi scheme has totally collapsed beneath itself (especially if the rumors are true; that there is no Gold in Fort Knox, NY, Chicago). The Federal Reserve is man’s convention. A way around truth. A way to distort reality. A way to enslave.

        • This is why I said the Yuan will be a world reserve currency:

          “They are faith and credit based on a system of productivity and monetary balances”

          I have more faith in the Yuan than the USD. Why.

          They control the supply chain now. They have the man power, and as we have witnessed. Men with AK47′s are more efficient than Tanks and Helicopters. Military they could take over the world.

          It is common knowledge to the people of the world that China can rule the world. That is why we just submit if SHTF.

  4. Pingback: Bullish News For Gold | My Blog

  5. America is, as usual, ahead of the global curve in terms of their starting to (albeit slowly) codify (natural) Law, the most profitable key to the 21st century.

    Supreme Court is willing to “incorporate laws of nature”

    The court called the correlation between the naturally-produced metabolites and therapeutic efficacy and toxicity to be an unpatentable “natural law” and found the first two steps to be not “genuine applications of those laws[, but] rather … drafting efforts designed to monopolize the correlations.”

    Dr. Robert Wah, Chairman for the American Medical Association, said that the Supreme Court had “prevented irreparable harm to patient care with today’s unanimous decision to invalidate two patents that gave Prometheus Laboratories exclusive rights over the body’s natural responses to illness and medical treatment,” and said that the decision was “a clear legal victory that ensures critical scientific data remain widely available for sound patient care and innovative medical research.” The US Patent Office released preliminary guidelines for patent examiners in light of this case on March 21, 2012.[25] On July 3, 2012 it issued a more substantial set of “interim guidelines” for “process claims in which a law of nature, natural phenomenon, or naturally occurring relation or correlation is a limiting element or step”[26] that replaced the preliminary guidelines.[27]

    http://en.wikipedia.org/wiki/Mayo_Collaborative_Services_v._Prometheus_Laboratories,_Inc.#Supreme_Court_Decision

  6. The performance of gold bullion is often compared to stocks due to their fundamental differences. Gold is regarded by some as a store of value (without growth) whereas stocks are regarded as a return on value (i.e., growth from anticipated real price increase plus dividends). Stocks and bonds perform best in a stable political climate with strong property rights and little turmoil. The attached graph shows the value of Dow Jones Industrial Average divided by the price of an ounce of gold. Since 1800, stocks have consistently gained value in comparison to gold in part because of the stability of the American political system.

  7. Improving US growth outlook offsets further Fed easingOur economists forecast that the US economic recovery will slow early in 2013 before reaccelerating in the second half. They also expect additional expansion of the Fed’s balance sheet. Near term, the combination of more easing and weaker growth should prove supportive to gold prices. Medium term however, the gold outlook is caught between the opposing forces of more Fed easing and a gradual increase in US real rates on better US economic growth. Our expanded modeling suggests that the improving US growth outlook will outweigh further Fed balance sheet expansion and that the cycle in gold prices will likely turn in 2013. Risks to our growth outlook remain elevated however, especially given the uncertainty around the fiscal cliff, making calling the peak in gold prices a difficult exercise.Gold cycle likely to turn in 2013; lowering gold price forecastsWe lower our 3-, 6- and 12-mo gold price forecasts to $1,825/toz, $1,805/toz and $1,800/toz and introduce a $1,750/toz 2014 forecast. While we see potential for higher gold prices in early 2013, we see growing downside risks.

  8. Our economists forecast that the US economic recovery will slow early in 2013 before reaccelerating in the second half. They also expect additional expansion of the Fed’s balance sheet. Near term, the combination of more easing and weaker growth should prove supportive to gold prices. Medium term however, the gold outlook is caught between the opposing forces of more Fed easing and a gradual increase in US real rates on better US economic growth. Our expanded modeling suggests that the improving US growth outlook will outweigh further Fed balance sheet expansion and that the cycle in gold prices will likely turn in 2013. Risks to our growth outlook remain elevated however, especially given the uncertainty around the fiscal cliff, making calling the peak in gold prices a difficult exercise.

  9. Our economists forecast that the US economic recovery will slow early in 2013 before reaccelerating in the second half. They also expect additional expansion of the Fed’s balance sheet. Near term, the combination of more easing and weaker growth should prove supportive to gold prices. Medium term however, the gold outlook is caught between the opposing forces of more Fed easing and a gradual increase in US real rates on better US economic growth. Our expanded modeling suggests that the improving US growth outlook will outweigh further Fed balance sheet expansion and that the cycle in gold prices will likely turn in 2013. Risks to our growth outlook remain elevated however, especially given the uncertainty around the fiscal cliff, making calling the peak in gold prices a difficult exercise.

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