Goldman Sees “Currency of Last Resort” Up 15 pc At $1,840/oz in 6 Months

Published in Market Update  Precious Metals Update  on 10 May 2012

By Stephen Flood

Gold’s London AM fix this morning was USD 1,590.00, EUR 1,228.37, and GBP 987.39 per ounce. Yesterday's AM fix was USD 1,585.50, EUR 1,221.87 and GBP 984.17 per ounce.

Silver is trading at $29.13/oz, €22.60/oz and £18.15/oz. Platinum is trading at $1,492.73/oz, palladium at $612.20/oz and rhodium at $1,300/oz.

Gold fell $15.80 or 0.98% in New York yesterday and closed at $1,591.00/oz. Gold ticked higher in Asia but has drifted lower since Europe opened. Support is at yesterday’s intraday low of $1,580/oz.

Cross Currency Table – (Bloomberg)

Gold is relatively unchanged after 3 days of gradual losses despite the degeneration in the Eurozone crisis with the deteriorating situation in Greece and Spain increasing the risk of contagion.  

The continuous short term panaceas of recent months look set create an even bigger crisis – which will benefit gold in the medium term.

Spain’s banking troubles could create the next political and economic crisis in Europe.  Spanish yields remain near 5 months high (10 year at 6.07%) after Madrid took over the country's 4th biggest bank Bankia in an effort to clean up its banking sector.  

Greece’s political turmoil threatens their solvency and risks an exit from the euro currency just months after Athens secured the latest round of ‘bailouts’ from international lenders.

While gold may go lower in the short term, it looks oversold. The Relative Strength Index (RSI) on gold is just above 30 which shows that gold is oversold.

Demand in the west remains muted with little physical coin and bar demand and ETF positions remaining largely flat - the total gold ETF holdings are down -0.12 million ounces, month to date.

When gold experienced its ‘Bernanke fall’ of $80 on February 29, spec length was just above 27 million ounces. Today the gold market longs are nearly 10 million ounces lower suggesting that the worst of the sell off may be over.

The positive action of the gold miners yesterday may also be indicative of a bottom – as the XAU and HUI were up 1.72% and 1.86% respectively.

Physical demand in Asia has picked up again with UBS reporting that demand from India was “again nearly twice average daily volumes”. Jewellers in India appear to be starting to rebuild inventories after the removal of the excise tax.

The Shanghai Futures Exchange launched silver futures trading earlier today. It generated a buzz and “massive interest” amongst Chinese investors according to Reuters. Prices fell in line with international markets.

The total trading volume on the eight contracts <0#SAG:> exceeded 300,000 lots. Thus, the one day old silver contract is now already the second most active contract on the Shanghai exchange after copper.

This bodes well for silver prices in the coming months and in time the silver futures market on the Shanghai exchange will likely rival that of COMEX with ramifications for the silver price.

Goldman Sees “Currency of Last Resort” Up 15 pc At $1,840/oz in 6 Months 
Goldman Sachs has confirmed that it remains bullish on gold and believes that gold will rally as the Euro crisis deepens and the US engages in more stimulus.

Gold 1 Year Chart – (Bloomberg)

Goldman maintains “constructive” 6-month forecast, says case for higher prices remains in place.

Goldman stands by its forecast for a rally in gold this year, saying that the precious metal will advance to $1,840/oz over six months as the U.S. central bank embarks on a third round of stimulus in June.

The precious metal remains the “currency of last resort,” according to analysts led by Jeffrey Currie in a report released yesterday. 

Goldman’s gold forecast implies a 15% return in 6 months.

“In early 2009, we suggested that gold had become the currency of last resort, overtaking the U.S. dollar’s status due the rising risk of sovereign default and debasement concerns,” Currie wrote in the report. Even as the U.S. currency advanced and gold fell on the European crisis in recent months, “it is too early for the dollar to reclaim this status,” they wrote.

“The case for higher gold prices remains in place,” the analysts wrote. “U.S. economic and employment data has now disappointed for several weeks, European election results point to further stress in the euro area, while anecdotal data suggests that physical gold demand remains resilient.”

(Bloomberg) -- Silver Futures Start Trade in Shanghai for Producers, Investors
Silver futures in China, the world’s second-biggest user, began trading today amid expectations for demand from producers seeking to manage their risks as well as investors aiming to protect their wealth.

The September-delivery contract, the most-active, traded at 6,145 yuan per kilogram ($30.27 per ounce) at 9:41 a.m. on the Shanghai Futures Exchange. It was priced to start at 6,166 yuan, higher than silver’s close on the Comex yesterday as the price incorporates China’s 17 percent value-added tax on imports.

The exchange, China’s second-largest commodity bourse by volume, aimed to help producers to hedge risks, Vice President Huo Ruirong said last week. The metal doubles as an industrial component used in solar panels, electronics and batteries as well as a protection of wealth that’s cheaper than gold.

“As an industrial metal with currency characteristics, silver will attract a lot of investor demand, especially from retail investors,” said Wang Ying, analyst at Beijing Antaike Information Development Co. “This will probably be bullish.”

Silver futures in New York tumbled to a four-month low yesterday on increased concern that Europe’s debt crisis will escalate. The July-delivery contract on the Comex traded little changed at $29.235 an ounce.

Prices in New York may average $35.40 in the fourth quarter, according to the median of 11 analyst estimates compiled by Bloomberg, as the global economy recovers. Manufacturing in the U.S. and China grew in April at close to the fastest rates in a year, increasing speculation that the world’s biggest economies may withstand the fallout from the crisis in Europe.

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Gold inches up; sentiment frail as Europe woes persist - Reuters

Gold Rebounds as Slump to Four-Month Low Spurs Investor Buying - Bloomberg

Euro Global Poll Shows More Than 50% Predicting an Exit - Bloomberg

American Eagle silver bullion sales down 23.5% from 2011 - Coinworld

Debunking Popular Gold Myths  – True Economics

Sprott On Gold Market Manipulation & Why Silver Will Outperform Gold - CNBC

Mining For Minerals On Asteroid  – Zero Hedge

Extraordinary delusions or the madness of machines - GoldSeek

Leeb - We Will Now See a Gold Standard Imposed in Europe – King World News