Goldman Sachs issues "Buy" on Gold; Gold drops lower

Goldman Sachs issues "Buy" on Gold; Gold drops lower

Interesting recommendation by Goldman and even more interesting to see the market reaction in gold today. Can you say that someone is particularly overjoyed by the opportunity to take that recommendation?

By the way, Goldman is echoing the remarks from Chairman Bernanke the other day and repeating what my interpretation of those remarks were in this week's comments entitled, "Pass the Juice Please".

Goldman's views in summary can be translated as follows: Gold market weakness has been tied to the fact that the markets were expecting "REAL INTEREST RATES" to rise in light of the recent economic data showing improvement in the US economy. However, the economic recovery is not strong enough to allow for higher rates and that coupled with Bernanke's comments that acccomodative monetary policy will be required for the foreseeable future means that gold has overreacted to the downside.

Goldman is looking for another round of QE which will pressure the Dollar and thus drive gold prices higher.


Rest assured that the hedge fund long liquidation and fresh short selling of today is being met by solid buying from Goldman's customers.

Also, I find it EXTREMELY TELLING that the bond market cannot seem to get much going to the upside today given the fact that the broader equity markets are swooning and the US Dollar is currently higher as the risk aversion trades come back on.

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Pass the Juice Please


In news this morning that most of the gold community was completely expecting I might add , Chairman 'Easy Money Ben' Bernanke announced this morning that he was concerned whether economic recovery was strong enough to sustain itself without supportive and accomodative monetary policy. Translation - near zero interest rates will remain as far as the eye can see.

Talk about messing with the heads of the Fed Funds Futures traders - they are getting beat to death by this Fed. Every single time they start anticipating a rise in the short term interest rates based on economic data releases, some one or more of the Fed governors comes down from his or her ivory tower and squashes the idea that the economy is sufficiently on the mend. Out through the front door goes the notion that these insanely low interest rates are finally going to be begin lifting.

I have said it before and will say it again - the FED IS TERRIFIED OF RISING INTEREST RATES. Do not forget these two reasons:

1.) the entire "recovery" has been fueled by an ultra low interest rate environment in which short term money is basically free for those who want to borrow it and then leverage it up for speculative trading purposes. (Think a rising stock market which has all the feel of another speculative bubble).

2.) the US federal debt is at banana republic levels and any, I repeat, any rise in interest rates, will suck more of the incoming federal revenue into servicing the cost of this debt (paying the interest on it), leaving less for the spendthrift class to buy votes with.

Bernanke and company cannot afford to have a stock market that stops moving higher because if and when it did, the entire facade of an economy on the mend would come crashing down with it.

The monetary masters have reversed the entire reason for a rising stock market from one driven higher by solid underlying fundamentals to one being rammed higher by lots of JUICE. I am reminded of that scene for the original version of the hit movie, "The Matrix", where Neo and Trinity go to resuce Morpheus from the clutches of agent Smith where they are asked what they are going to need to pull off the stunt. "Guns, lots of Guns", comes the answer.

"Juice, lots of Juice" -

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Gold Price ‘Too Low’: Goldman Sachs


The price of gold, one of the most eagerly watched indicators of market confidence, is currently “too low” relative to real interest rates, according to commodities analysts at Goldman Sachs.

The analysts forecast that gold [XAU= 1663.12 -16.92 (-1.01%) ] will rise to $1,785 per ounce over the next 3 months, $1,840 over the next 6, and $1,940 over the next year. “At current price levels gold remains a compelling trade but not a long-term investment,” they wrote in a note.

They argue that U.S. real interest rates are the most important driver of the price of gold in dollars – but that this relationship broke down late last year and has not yet returned to the level current negative or low yields on 10-year Treasurys imply. The low yields have come following the Federal Reserve’s Operation Twist – which involved the central bank buying up longer-term Treasurys and selling shorter-term Treasurys and helped restore the markets’ confidence in the U.S.

“We believe that despite last fall’s decline in 10-year TIPS yields, the gold market may have been expecting that real rates would soon be rising along with better economic growth, leading to a sharp decline in net speculative length in gold futures,” the analysts said.

“Our U.S. economists expect subdued growth and further easing by the Fed in 2012, which should push the market’s expectations of real rates back down near 0 basis points and gold prices back to our 6 month forecast.”

More bearish views state that the gold price has already peaked at last year’s record high of $1,920.70, as markets get more confident about the future of Western economies.

Malcom Norris, CEO of Australia-based miner and explorer Solomon Gold, told CNBC Wednesday the precious metal could even reach $2,000 per ounce.

The Goldman analysts admit that stronger-than-expected U.S. economic data is a “growing risk” to their forecasts for the gold price. Better-than-expected data on the slow U.S. recovery, as well as mass liquidity injections in the European banking system, have helped to drive the price of gold down this year.

There is also some speculation that central banks around the world may start buying gold again, after the UK’s Chancellor of the Exchequer George Osborne hinted that the Bank of England may stockpile the precious metal in last week’s Budget – although he later said he meant reserves in general rather than specifically gold.

“By holding more gold central banks are insuring themselves against their own profligacy. They print money. The price of gold goes up. And if they hold a lot of the stuff in their vaults, they are the big winners from the rise in price,” Matthew Lynn, founder of Strategy Economics, wrote in a research note.

“If you can pull it off – and there isn’t anything to stop you – that sounds like an easy way to make a living.”