Goldman, CITIfx both very positive on gold price

Goldman Sachs sees the U.S. economy slipping back, a return of QE and higher gold prices up to its previous target of $1840 an ounce this year. CITIFx would seem to concur and looks to $2400 gold!


Author: Lawrence Williams
Posted: Friday , 27 Apr 2012

LONDON (Mineweb) - 

In its latest Commodity Watch, Goldman Sachs' commodities analysis team in New York, London and Shanghai remains cautious on the commodity complex as a whole but does admit to liking the prospects for gold.  However it does emphasize that its views are based "not on improving fundamentals, but rather on relative value" as the bank sees the U.S. economy slowing again this quarter and expects gold to converge to real interest rates.

In its commentary on the overall commodities situation, Goldman notes that the recent commodity price decline does open up prospects of a possible rise across the board to its near-term price targets, but that it actually remains neutral on most as it feels downside risks remain high in the short term.  It cites renewed European sovereign debt concerns and a modest slowing in U.S. growth patterns as its principal reasons for caution but does note that the situation could change for the better given signs that Chinese growth looks again likely to pick up after the government initiated slowdown of last year.

At the moment it sees short term reasons for the West Texas Intermediate oil price to pick up and converge to the Brent crude price and longer term it does see base metals data improving as the focus moves away from U.S. and European debt and, most significantly, Chinese growth continues to re-accelerate.

On gold, though, it expects prices to move upwards as subdued US growth reduces the market's expectations of real rates and perhaps, most importantly and counter to much of the current market feeling, suggests that the anticipated North American growth slowdown will see a return by the U.S. Fed to some form of quantitative easing.  It is this that the bank sees as effectively reducing the expectation of positive real interest rates, driving the gold price up to its earlier target of $1840 an ounce.

Interestingly the forecasts seem to be predicated almost entirely on U.S. economic factors suggesting the continuation of the current gold price tie to weakness or strength in the dollar as much as anything, and other factors - notably a possible return of Indian demand and high consumption from China - seem largely to be ignored in the analysis.

In its own technical analysis release, CITIFx would seem to concur with an even more positive viewpoint as far as gold price potential is concerned, although also sees dollar strength continuing which can also work against gold price increases.  On the yellow metal CITI says "We remain convinced that gold is [in]consolidation in a fashion similar to late 2006/early 2007 before it headed higher again. We continue to target $2,400 in the next trending move higher."