Goldman tells clients to sell gold; did same in November 2007, gold then rose 12%

Today’s AM fix was USD 1,309.50, EUR 968.28 and GBP 819.77 per ounce. Yesterday’s AM fix was USD 1,321.00, EUR 973.18 and GBP 821.82 per ounce.

Gold fell $3.00 or 0.23% yesterday, closing at $1,319.40/oz. Silver inched down $0.03 or 13% closing at $22.30. Platinum climbed $7.69 or 0.6% to $1,399.99/oz, while palladium rose $9.37 or 1.3% to $710.37/oz.

Gold in USD, 6 Year - (Bloomberg)

Gold ticked lower today as the U.S. budget impasse dragged on for a second week and threatened to spill over to talks about raising the U.S. debt ceiling, boosting the metal's safe-haven appeal.

President Obama, Republican and Democrat politicians remain intransigent and President Obama said yesterday he would negotiate on budget issues only if they agree to re-open the federal government and raise the debt limit with no conditions.

Today, Obama will announce his intent to nominate Federal Reserve Vice Chairwoman, Janet Yellen, to be the next head of the U.S. central bank, a White House official said. Yellen is extremely dovish and will continue to debase the dollar which will be very positive for gold.

Indian silver imports are on pace to hit a record high this year as the wedding and festival season drives up buying of the precious metal instead of traditional gold, made scarcer and dearer by misguided punitive taxes and quasi capital controls aimed at preventing Indian people from buying gold to protect from the devaluation of the rupee.

Despite these punitive taxes, India's gold demand could rise as much as 15% this quarter to 300 tonnes as pent-up demand following a good monsoon keeps the country on track for yearly demand estimated at 1,000 tonnes. 

Gold is a “slam dunk” sell for next year because the U.S. economy will extend its recovery after lawmakers resolve stalemates over the nation’s budget and debt ceiling, Goldman Sachs Group Inc.’s Jeffrey Currie  said yesterday on a panel in London.

“The bank has a target for gold prices next year at $1,050 an ounce,” said Currie, Goldman Sachs’s head of commodities research..

Gold Prices Fixes Rates Vols - (Bloomberg)

It is worth remembering that Goldman, to much fanfare and media attention, “told clients” in November 2007, to sell gold. On November 29, 2007, Goldman recommended that investors sell gold in 2008 and it named the strategy as one of its ‘Top 10 Tips’ for the year.

Gold subsequently rose nearly 6.4% in December 2007 alone - from $783.75/oz to $833.92/oz.

Gold then rose another 5.8% in 2008 - from $833.92/oz at the close on December 31, 2007, to close at $882.05/oz on December 31, 2008.

Gold rose 12.2% in the 13 months after Goldman's sell gold call. Gold then rose 23.4% in 2009, 27.1% in 2010, 10.1% in 2011 and 7% in 2012.

Thus, proving Goldman’s ‘Top Tip’ prediction absolutely wrong and costing their clients and many of the unsuspecting public a lot of money in the process.

At the time, Goldman cut its gold forecast to $740/oz from $810/oz on a 12 month basis. One year later, gold closed at $882.05/oz - more than 19% above Goldman’s ‘forecast’.

The crystal ball gazing of Wall Street banks and hedge funds and others who have suggested gold is a bubble in recent years has cost many of the investment public dearly.

As ever, it remains wise to ignore the considerable noise that emanates from Wall Street and maintain a healthy, long term allocation to physical gold.

Cross Currency Table - (Bloomberg)

A buy and hold strategy, while difficult in recent months, will continue to reward the prudent.

In these uncertain times, all owners of gold and those considering owning gold should acquaint themselves with the most appropriate storage options for their own particular circumstances. 

About the Author
Mark O'Byrne

Mark O'Byrne is executive director of Ireland-based GoldCore.

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