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.
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
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