Goldman: Time to Short Gold

This is an interesting change in position from Goldman on gold. They’re not just saying sell.  They’re saying sell short. It’s particularly interesting when you consider that it’s occurring after sentiment appears to have cratered (via FT Alphaville):

Turn in gold prices accelerating; closing our long gold position
Given gold’s recent lackluster price action and our economists’ expectation that the acceleration in US growth later this year to above-trend pace will support US real rates, we are lowering our USD-denominated gold price forecast once again. Our new forecast is further below the forward curve with year-end targets of $1,450/toz in 2013 and $1,270/toz in 2014. As a result, we recommend closing the long COMEX gold position that we first initiated on October 11, 2010 for a potential gain of $219/toz, with the risk reversal overlay expired on March 25. Our long-term gold price forecast (2017+) remains at $1,200/toz: while higher inflation may be the catalyst for the next gold cycle, this is likely several years away.

Initiating a short COMEX gold position as our ECS Top Trade #8
While there are risks for modest near-term upside to gold prices should US growth continue to slow down, we see risks to current prices as skewed to the downside as we move through 2013. In fact, should our expectation for lower gold prices continue to prove correct, the fall in prices could end up being faster and larger than our forecast, as aggregate speculative net long positions across COMEX futures and gold ETFs remain near record highs. We therefore recommend initiating a short COMEX gold position as our ECS Top Trade #8, implemented through an S&P GSCI® front-month rolling index to further benefit from the contango in the COMEX future curve, targeting a move to $1,450/toz with a stop at $1,650/toz. While we may be end up too early in entering this trade, we prefer that to being late given our belief that the skew to current prices is to the downside.

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • LVG

    They’re probably taking the other side of this trade.

  • http://www.orcamgroup.com Cullen Roche

    Also interesting to note their thesis is based on real rates:

    “Given gold’s recent lackluster price action and our economists’ expectation that the acceleration in US growth later this year to above-trend pace will support US real rates, we are lowering our USD-denominated gold price forecast once again.”

  • http://www.orcamgroup.com Cullen Roche
  • Greedsgood

    A day late, and an oz short if you ask me. Looks like the weak hands have already been shaken out of the trade based on price action and sentiment readings (Hulbert, ETF/Fund outflows). The gold miners have been absolutely decimated, but showing signs of near capitulation.

  • jaymaster

    I can’t say I disagree with their forecasts. But shorting gold? Yikes!

    If “investing” in gold is speculation (and I believe it mostly is), then shorting it is super-mega speculation.

    And they’ll probably lever it up 3 to 1 or such to boot.

    I don’t see how they can even call themselves “investment banks” any more. They’re SPECULATION banks now.

  • Andy Richardson

    I am levered short GLD. It has been extremely unpopular among the traders I know to short precious metals so I know they are all still thinking “Buy the dip! Buy the dip”. That works until it doesn’t and it hasn’t been working that last 6 months. Retail is still super long judging by comments on Seeking Alpha and various blogs. This is contrary to Hulberts sentiment BS but I don’t trust him. And most importantly, if you read Pragcap regularly, you know that the thesis for being long gold is totally bogus. The only reason to be long is the greater fool trade and once that stops working…its pop goes the bubble.

  • Matthijs

    Well that’s the thing: modern finance has almost nothing to do with investment nowadays, it seems. It’s for 95% or more a sort of casino gambling, speculation on what other traders will do. Betting on bets on counterbets on …

    When people speak about finance and “investment”, it’s almost never about actual investment in actual companies building real products. No wonder the world is in such a mess.

    Nowadays you have one person doing actual work in a factory, being paid the absolute lowest possible, just enough so the worker doesn’t die. Then there are 3 managers managing the worker. Then there’s the CEO making almost all the money. And then there’s 20 people buying and selling all kinds of “innovative” financial products trying to make a profit based on that little actual work being done. Only some can win in this zero sum game, many will loose.

    Guess it’s a natural consequence of production being made more efficient, more automated, ICT, financialization, globalization, etc so that less and less people are needed in the workforce. And since some people do make a good profit trading, (too) many follow hoping to make a living that way as well. Mean while, all that potential productivity is lost.

  • LVG

    I can’t recall an easier time to make money in stocks. Just listen to the Fed, buy stocks and go to sleep.

  • Boston Larry

    @LVG, you could have done the same thing in October, 2007. Listen to Bernanke who was saying the Fed will do whatever it takes, buy stocks, and watch what happens over the next 17 months. Whenever it seems incredibly easy, all of a sudden it’s not.

  • Andy Richardson

    Matthijs,
    I think you may be overestimating the amount of people actually trading in the market for a living. It’s extremely difficult and there are at least 100 failed traders for every successful one. There are wealth managers but that’s a different story. Many money managers are good at selling themselves but terrible at trading or investing. Most people actually have regular jobs. They may not be working in a factory but 99% of people aren’t CEO making tons of money nor are they making millions trading the market.

  • Johnny Evers

    AGree with Mattjhis here.
    The hold duration on the typical stock can be measured in days, if not minutes.
    For most money managers, ‘long’ means days, not years.
    I would also guess that most money in the market is bank or institution money, or wealth money. Maybe a lot of leveraged money?
    Very few individual investors at work in the market.

  • Matthijs

    Andy, of course my comment was a bit over the top ;)

    But my main point remains and that is that finance is too much about speculation and too little about real investment nowadays. That’s what economists like Bezemer, Keen and others say as well. Modern finance, for different reasons, is way too much “investment” in the financial sector (speculation on asset prizes) and way too little in real economic activities.

    Not sure what could be done, but in my opinion ALL investment world-wide should legally be limited to simple, real buying of normal stocks of firms. No swaps, no derivatives and stuff like that. Make financial work boring again and hard work, so that the real economy is helped by finance instead of being drained.

  • BHB

    I completely tune out when Goldman gives any type of investment advice. In fact, I just turned a little bullish on gold due to that report. Regardless, I will just keep dollar cost averaging into physical gold and view it as my insurance policy against continued currency debauchery and not worry about the price every day.

  • regurgitating Parrot

    Things cooling down it China?

  • http://lesliewilliamslaw.com/ Leslie Williams

    It’s not good to see the price of gold coming down, but there is usually a way to take advantage of a situation. I’m not sure if shorting gold is the best way though.

  • jaymaster

    Well, good luck!

    I guess I could have clarified that I really don’t care what other people do with their money.

    As long as they don’t come asking me to bail them out if they get wiped out….

  • rp1

    Short squeeze muppets! Now who could predict that?

  • Andrew P

    Gold is a hedge against negative real rates. Do you think real rates are going positive anytime soon with nominal rates still going down?

  • Mr. Market

    For the first time I agree with Goldman Sachs.

  • http://www.nowandfutures.com bart
  • http://www.nowandfutures.com bart

    It wouldn’t surprise me at all to see $1480-90, and I’d only be mildly surprised to see low to mid $1300s

  • Charles

    good call bart. not such a great call everyone fading goldman