Unsurprisingly, Goldman Sachs' (NYSE:GS) head of commodities research, Jeffery Currie, told investors to short Gold highlighting that the crises in Ukraine and Europe are supporting the price of gold, but that the US Fed’s Policy shift would cause a sharp decline in the price of gold. Sound familiar?
Currie is calling for a +$200 per ounce price decline in gold in under four months. That’s 17% below the price today of $1,262 and would represent one of the quickest and sharpest price declines in the price of gold ever.
“Our target at the end of this year is $1,050, really driven by the view that we think that the Fed will ultimately be the dominate force here and put more downward pressure [on prices],” Currie told CNBC’s “Squawk Box” on Thursday. “Gold is a hedge against a debasement in the U.S. dollar.” He said he’d recommend shorting gold.
Many investors (me included) believe that whenever Goldman Sachs issues a short recommendation for gold its actually a bullish signal, and probably a time to go long. Goldman and their spokesman Currie have a history of unusually timed gold purchases on the back of these bearish calls.
In April 2013, Goldman sent clients the following note:
…we recommend closing the long COMEX gold position that we first initiated on October 11, 2010 for a potential gain of $219 per ounce, with the risk reversal overlay expired on March 25. While there are risks for modest near-term upside to gold prices should U.S. growth continue to slow down, we see risks to current prices as increasingly skewed to the downside as we move through 2013.
As Goldman told clients to sell the bank was buying. They added 3.7 million shares of the SPDR Gold Trust ETF (ARCA:GLD) in the following period.
India which is one of the world’s largest gold buyers is about to enter its festival season, which is historically a rally period for gold. This is what US Global’s Frank Holmes refers to as ‘the love trade’.
Gold is susceptible to dollar strength given strong economic numbers out of our southern neighbour. That being said, when you look across the gold equities sector (the way I play gold), many of these companies already price in $1,100 to $1,200 per ounce gold so further downside from current levels as long as they are sustained below $1,100 per ounce shouldn’t cause much more damage to these shares.
Doom and gloom can only last so long before hope and optimism wins the day again.