Goldman Sachs recommended shorting gold just several days ago. Then yesterday, the banking giant in a report on bubbles noted that the gold ETF could be classified as being in a bubble. So what do investors expect several hours later? Well… few probably predicted that now Goldman would recommend closing the gold short position. In a 12 page report on commodities Goldman devotes one paragraph to why they think now is a good time to close the position, while hedging the recommendation with a vague statement that their ‘bias’ is for gold to see investor outflows (not something atypical to see brokerage reports). Below is the statement followed by a general look on outlooks and concluded by the entire report in scribd:
H/T Zero Hedge
We have closed our recommendation to short COMEX Gold, as prices moved above the stop at $1,400/toz. We have exited the trade significantly below our original target of $1,450/toz, for a potential gain of 10.4%. The move since initiation was surprisingly rapid, likely exacerbated by the break of well-flagged technical support levels. Our bias is to expect further declines in gold prices on the combination of continued ETF outflows as conviction in holding gold continues to wane as well as our economists’ forecast for a reacceleration in US growth later this year.
Shifting our near-term positioning recommendation to Neutral Commodity returns have dropped sharply so far in April as concerns around global growth deepened. The negative sentiment in the market has weighed on cyclical commodity prices in particular, with Brent crude oil and copper down 9% and 8%, respectively, month to date.
For oil, it is important to emphasize that these demand concerns have not yet translated into inventory builds. However, European product cracks have come under significant pressure, raising concerns regarding European demand. In addition, Chinese oil demand slowed down significantly between January and March. This is consistent with the recent downgrade by our China economists of Q2 sequential growth forecast from 8.2% to 7.5% and the weaker-than-expected April flash PMI for China released this morning, which highlight the increased risk that Chinese oil demand growth will remain weak in the near-term. Consequently, we lower our near-term Brent forecast to $100.00/bbl from $110.00/bbl, leaving our 2013 forecast at $105.00/bbl from previously $110.00/bbl.
For copper, micro fundamentals remain more supportive than for oil, as suggested by the inventory draws in China. Hence, we remain bullish on the copper outlook over the next 3 and 6 months, albeit from lower prices. Specifically, we recently lowered our 3, 6, and 12-month forecasts, while keeping the profile unchanged, to $7,500/t, 8,000/t, and $7,000/t, as we acknowledge the increasing willingness of the market to price future surplus ahead of time (more so than we had previously anticipated).
On net, we have lowered our 3- and 12-month S&P GSCI return forecasts to 2.5% (from 6% and 3% previously). Accordingly, we shift our near-term positioning recommendation in commodities to Neutral from Overweight (maintaining a Neutral recommendation on a 12-month horizon).