Goldman Sachs and Slam Dunk Gold Shorts

by on December 20, 2013 3:47 am GMT

Goldman Sachs head of commodities research Jeffery Currie said that gold would be a “slam dunk” sell in 2014, and spot gold prices seen the worst close in over three years. Gold bugs scattered when the Federal Reserve turned on the basement light and turned off one of their money printers. A taper of $10 billion was enough to create a three-year low, stopping less than $7 the yearly low (not close) of $1,1,179.40 per troy ounce.

Currie said, recently, “gold is now likely to grind lower throughout 2014.” On November 20, Goldman Sachs said gold would drop to $1,050 by the end of next year, while your humble correspondent at Forex Root believes gold will dip $12 lower based on technical and fundamental factors. But, why nit-pick? “Much of the expected price decline has been priced in as opposed to a more gentle process as the Fed backs away from QE. When the gold market sees these events, it usually tries to price it in immediately,” he continued.

Inflation, at least as it is currently calculated, is low. There are risks of deflation in the United State and the eurozone. The United Kingdom has seen consumer prices decline .6 percent in two months, and this weighs down gold. Deflation will, or the possibility of deflation, will send gold lower. Also, data is encouraging. It’s not perfect, but as Currie stated, gold will try to price in data immediately. If the  data remains stable, inflation low, and institutional sentiment bearish, gold is continue lower.

“If you were doing well in equities, you didn’t need to be in gold. As long as the economic data continues to gain traction, we should see the dollar rise and the Fed continue to taper. That’s typically negative for gold,” said

I expect the next round of taper, if all remains equal, will be in March or sometime late first quarter of 2014. This was the general consensus for the first taper, so it is likely the Fed wants to continue the momentum while the rally in equities continue. The Federal Reserve is estimating the unemployment rate will dip to 6.3 percent by the end of the year, but, historically, the Federal Reserve has a poor forecasting record. This is also when they expect to conclude the latest round of quantitative easing.

However, gold will have its day to roost… eventually. It is important to realize from the low of $371.30 made on May 10, 2004, gold increased to $1,923.7 in seven years. The metal has also appreciated every year since 2001, what other asset has done so?

WK Chart of GC (10Y)

WK Chart of GC (10Y)