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Goldman Sachs retains its Short Gold recommendation

Here below is the latest from Jeffrey Currie of Goldman Sachs. Do not kill the messenger. My thanks to reader 'N' this morning for sending it in.


Maintaining our short gold recommendation

Our short gold recommendation (which we opened with 17% upside, in line with our $1000/toz 12-m forecast) is currently at a 3.3% loss, with a stop loss at 7%. The initial gold rally was driven by concerns regarding global growth and asset price volatility, and corresponding dovishness by the Fed, which saw gold outperform. More recently risky assets have rallied sharply, and gold has underperformed, as sentiment surrounding Chinese and global growth has improved, and as the market continues to price a dovish Fed.

Going forward we expect that recent and upcoming US data, supported by easing financial conditions, will likely result in a more hawkish Fed, higher yields, a stronger US dollar, and the return of divergence. This in turn will likely put downward pressure on gold prices towards our near-term target of $1100/toz (current price is $1248/toz). Indeed, gold has very limited near-term upside in our view, reflecting a limited ability of the Fed to surprise on the dovish side - the market is now only pricing 22 bp of rate increases during 2016, and given very high levels of gold net speculative positioning and ETF holdings.