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Goldman Says Gold To End 2013 At $1,450/Oz; Initiates Short Position

By Kitco News
Wednesday April 10, 2013 9:10 AM

(Kitco News) - Goldman Sachs again cut its gold price forecasts and said gold will end 2013 at $1,450 an ounce, citing less investor interest in the yellow metal and expectations that the U.S. economic growth will accelerate later this year.

Furthermore, the bank said Wednesday it is closing out its long Comex gold position first initiated in October 2010, for a potential gain of $219 an ounce, and is now calling for a short position in Comex gold. It estimates the 2014 year-end target for gold prices at $1,270.

Their new three-, six- and 12-month average price forecasts now are $1,530, $1,490 and $1,390, respectively, down from their previous forecasts in February of $1,615, $1,600 and $1,550, respectively. Their average 2013 gold price forecast, which includes realized first-quarter prices, fell to $1,545 from $1,610 previously. The 2014 average gold price forecast is $1,350, down from $1,490.

Goldman said even though U.S. economic data has disappointed and economic concerns in the eurozone flared up earlier this year, gold prices are essentially unchanged this month, suggesting the interest in holding gold is subsiding. The firm said its economists see few ramifications from the economic fallout from Cyprus, and they don’t expect the recent U.S. slowdown to derail the faster recovery they’ve forecast for the second half of 2013.

Goldman’s precious metals analysts said that means “a sharp rebound in gold prices is unlikely.”

With higher U.S. real interest rates expected later this year, the firm is once again lowering its U.S. dollar-denominated gold forecast. When the bank lowered its forecast in late February, it suggested the gold cycle turn was picking up and this new forecast more strongly emphasizes this view, they said.

The bank said in the near term, gold could see “modest” price gains if U.S. growth continues to slow down, but they believe the greater risk to current gold prices is downward this year, especially since holdings in gold exchange-traded funds are falling and speculative net-long positions in the Commodity Futures Trading Commission’s weekly data reports are also down.

“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,” they said.

They are not advocating a straight short position in Comex gold, rather, the recommended short position is implemented using an S&P GSCI front-month rolling index, targeting a move to $1,450. With this trade, the firm expects to take advantage of contango in the Comex market. Contango is when the spot month contract is cheaper than the deferred contracts.

“While we may be … 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,” they said.

The firm also said this reduced forecast also accounts for continued central bank gold purchases and expects the pace of buying to be slightly higher than the 2009-12 trend pace of official sector buys. They base this view on the strong buying habits of central bankers in the past three months. Although central banks may still be buyers, Goldman said their purchases would need to be much stronger to stabilize gold prices.

Goldman said it retains its long-term gold price forecast – beyond 2017 - at $1,200, noting “while higher inflation may be the catalyst for the next gold cycle, this is likely several years away.”

By Debbie Carlson of Kitco News dcarlson@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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