Pro:
1. Goldman Sachs advised clients to short gold (a contrarian signal)
GS removed the short gold, although they think gold weakness will continue.
Goldman Sachs: Stop Shorting Gold
By Steven Russolillo
The firm’s latest call comes about two weeks after it told clients to start betting on lower gold prices. On April 10, Goldman’s “short” call coincided with it slashing its short- and long-term forecasts for the yellow metal.
On April 12, gold embarked on its worst two-day plunge since futures first started trading in New York.
After an 11 % tumble in gold prices over the past two weeks, Goldman is now telling clients to take profits and move on, even as it expects prices to keep falling throughout the year.
From Goldman analysts:
We have closed our recommendation to short COMEX Gold, as prices moved above the stop at $1,400/toz. We have exited the trade significantly below our original target of $1,450/toz, for a potential gain of 10.4%. The move since initiation was surprisingly rapid, likely exacerbated by the break of well-flagged technical support levels. Our bias is to expect further declines in gold prices on the combination of continued ETF outflows as conviction in holding gold continues to wane as well as our economists’ forecast for a reacceleration in US growth later this year.
Gold futures recently fell 0.3% at $1417.50.
blogs.wsj.com
2. recent economic weakness globally (Europe, China, etc.) and falling commodity prices (copper especially) indicate QE4 is probable. Serial QE = gold bull market. This has been true, and will continue to be true, no matter what the "official" inflation rate is.
It all depends on whether gold behaves as a commodity or as a non-fiat currency. Who knows which it will be and when. Lately it is behaving like a commodity.
3. $1,200/oz production cost. This is a pro, because it means low gold prices are a self-correcting problem. In the last recession, when oil got below $80, high-cost production (tar sands) and high-risk (ultra-deep water) got shelved, and not restarted till oil got back above $80. The same should apply to gold. Any decline in gold below $1200, for any reason, is likely to last only a few months at worst.
Oil is completely consumed shortly after it is produced. Almost all the gold that has been mined is still around. It can satisfy non-investment demand for decades.
4. disproportionate stock price decline:
gold down 23% ($1924 to $1476)
NEM down 54% ($69 to $32)
Justified given the dismal gold mining cost trends. It seems costs expand to approximate the current price of gold regardless of how high the price goes.
5.
See 4. |
