Commodity Trade Mantra

Gold Bears Active Again – Goldman Forecasts A Drop below $1,000

Gold Bears Active Again - Goldman Forecasts A Drop below $1,000

Gold Bears Active Again – Goldman Forecasts A Drop below $1,000

Gold prices extend declines to the lowest levels in over a month on fears the United States would curb its stimulus soon and as a U.S. strike on Syria looked less likely. Gold traders and investors alike are the most bearish since June as the threat of an imminent attack on Syria eased and speculation mounted the Federal Reserve will start curbing stimulus as the U.S. economy improves. Russia is seeking an agreement that would make military action unnecessary, Foreign Minister Sergei Lavrov said before a meeting in Geneva with U.S. Secretary of State John Kerry. Syria called for the U.S. to drop its military threats.

Spot and Comex gold futures were on course for their worst week since June on expectations of the Fed rollback. Comex gold futures for December deliver retreated to a five-week low and hit an intraday low of $1,304.80 an ounce, its weakest since August 9. Gold hit a high of $1,330.56 an ounce on physical buying before falling to a low as $1,307.99, its weakest in five weeks. Purchases from jewellers in Hong Kong and mainland China initially helped gold gain more than half a percent, but heavy selling on the COMEX and bullion futures on Tokyo Commodity Exchange spilled into the cash market. Gold seems set for the first annual drop in 13 years as faith in the metal as a store of value weakened and the Fed indicated it could buy fewer bonds.

Market participants have, since April this year, feared that U.S. Federal Reserve may announce a cut in its massive monthly bond purchases on Sept. 18 to start reining in nearly five years of super-easy dollars that had sparked fears of inflation and encouraged investors to buy Gold. The Federal Open Market Committee – FOMC meeting is set to release a policy statement at the end of its two-day meeting on 17 and 18 Sep (next Wednesday). Gold’s appeal as a safe haven has also been dented by diplomatic efforts to place Syria’s chemical weapons under international control, which may avert a U.S. military strike.

Goldman Sachs expects Gold prices to crash below $1,000:

Goldman Sachs Group says that as the U.S. Federal Reserve withdraws stimulus and economic data improve, there’s a risk that gold bullion may extend declines to drop below $1,000 an ounce. Gold futures haven’t traded below $1,000 since October 2009. Jeffrey Currie, head of commodities research said, “While we agree with the mid-cycle price somewhere around $1,200, we believe that at least near term it can overshoot to the downside, which is why we have $1,050” as a target. It clearly could trade below $1,000.” “The real key in gold is to see the evidence of the improving economic data in the U.S.,” said Currie. Weakening emerging-market currencies, especially the South African rand, will also help to reduce the cost of production in dollars, he said. The U.S. federal government needs to increase its debt limit later this year, and Goldman expects that the ceiling will be raised by the end of next month.

The rebound in gold prices is over and investors should sell as it drops toward $1,200 by the end of this year, Societe Generale said in a Sept. 10 report.

“For next year, a move to $1,000 is on the cards,” said Dominic Schnider, head of commodities research at UBS AG’s wealth-management unit in Singapore. “Once a timetable of tapering is known, then you probably will see a fresh selling wave of the exchange-traded fund side.”

Credit Suisse Group AG raised the possibility of gold trading below $1,000 in May as Ric Deverell, head of commodities research at the bank, said then that bullion was going to get crushed as inflation risks remained muted. That forecast was for bullion in five years’ time.

A Gold Bull among a world full of Bears:

Yet in the face of the recent weakness in gold, some market analysts see upside ahead. HSBC Global Research raised its 2013 gold price forecast and said physical demand is becoming a major driver for the metal. It lifted its price outlook for this year to $1,446 an ounce up $50 from its previous forecast of $1,396, but kept its 2014 forecast unchanged at $1,435. HSBC cited physical buying of the metal for the forecast hike, with investment demand fading as fears of imminent inflation diminish. “With investment demand no longer determining gold prices, we believe the price is now being driven by physical demand for jewelry, coins, and bars from China, in particular. Indeed, we would argue that physical demand trends will be key to gold prices in 2013 and 2014,” Kitco quoted the HSBC analysts as saying.

Ben Bernanke on Gold:

Gold has fallen this year because investors see less need for disaster insurance, Bernanke said in July. One reason that prices are lower is that people are less concerned about extreme outcomes, particularly negative, he said.

Conclusion:

I feel that “Tapering” concerns are quite overblown and even a reduction in bond buying from $85 billion a month to $65 billion is still a lot of new stimulus. I have my doubts on the so-called “Tapering” which may prove to be a limited edition, keeping in mind the fragile state of the economy. Read more on The US Fiscal Gap Is $200 Trillion… The United States Is broke  and also the  Summary Of The Current US Debt and Economic Situation

As for the war on Syria – I yet have my doubts that all is over- Oil Price Forecast: The “Syrian Premium” Is Not Temporary

As for my outlook on Gold and Silver – As mentioned yesterday

Gold prices may slip further after testing $1,337, the 38.2% retracement of the June-August rally on Fibonacci analysis. A fall below that level should add weight to the scenario that a broader bear trend is resuming, taking gold prices lower to $1,270 and then $1225. Only a trend reversal with sustained upside movement in gold above $1369 could lead prices further to $1450 and then to $1531. I remain bullish on silver as always maintained. Silver prices have a reasonable support around $22, but may decline close to $19.90 on a strong downside pressure.

Happy Trading.

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