Wednesday, 5 December 2012

Goldman Sachs cuts gold outlook, sees growing risk

Dec. 5, 2012, 8:40 a.m. EST  

http://www.marketwatch.com/story/goldman-sachs-cuts-gold-outlook-sees-growing-risk-2012-12-05
 
 
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By Francesca Freeman
Goldman Sachs Wednesday lowered its price forecasts for gold in 2013, citing growing downside risks to the metal's price.
The bank cut its three-month gold forecast by 0.8% to $1,825 a troy ounce, its six-month forecast by 7.0% to $1,805/oz and its 12-month forecast by 7.2% to $1,800/oz. It also introduced a 2014 gold price forecast of $1,750/oz.
"While we see potential for higher gold prices in early 2013, we see growing downside risks. As a result, we find that the risk-reward of holding a long gold position is diminishing," the bank said.
While gold prices should remain supported in the near-term by further economic easing in the U.S. and continued weak economic growth, medium-term, "the gold outlook is caught between the opposing forces of more Fed easing and a gradual increase in U.S. real rates on better U.S. economic growth," Goldman Sachs said.
"Our expanded modeling suggests that the improving U.S. growth outlook will outweigh further Fed balance sheet expansion and that the cycle in gold prices will likely turn in 2013," it added. 


Dec. 5, 2012, 12:55 p.m. EST

Gold tries to move higher but stays below $1,700

By Myra P. Saefong and Sarah Turner, MarketWatch
SAN FRANCISCO (MarketWatch) — Gold futures weaved in and out of positive and negative territory Wednesday, but prices for the metal held ground below the key $1,700 an ounce level, undermined by a sharp selloff in the prior session.
Gold for February delivery GCG3 -0.01%  was last down $1, or 0.1%,to $1,694.80 an ounce on the Comex division of the New York Mercantile Exchange. It had briefly touched a high of $1,708.30 and fell to as low as $1,686.
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Why is gold selling off?

Gold has dropped sharply, falling below psychological level.
The precious metal slumped on Tuesday, falling $25.30, or 1.5%, to a one-month low. Read: Gold slumps to one-month low below $1,700,
Recent declines in gold made “absolutely no sense” to James West, portfolio adviser to the Midas Letter Opportunity Fund.
Gold prices were falling “despite the irrefutable existence of growing investor unease at the twin issues of the fiscal cliff and shortly thereafter, the debt ceiling,” he said.
“But this gold market is encumbered by the paper futures market,” West said. “There is robust contract origination among major futures-market participants selling paper gold short that far exceeds the real gold buying.” See Commodities Corner: With this volatility, is gold still a safe haven?
On Wednesday, Goldman Sachs lowered its price forecasts for gold in 2013, citing growing downside risks to the metal’s price. See: Goldman Sachs cuts gold outlook, sees growing risk.

Data and the dollar

ADP estimates Wednesday showed private-sector jobs growth slowing, notably in the manufacturing industry, due to fallout from Hurricane Sandy. See: U.S. jobs growth slows in November, ADP estimates.
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Following the data, the dollar was higher, but the greenback has since pulled back, easing some pressure on dollar-denominated gold prices. The ICE dollar index DXY +0.13% , which measures the greenback against six major rivals, traded at 79.750, below the day’s high of 79.845, though still above the 79.632 from late North American trading on Tuesday. Read: Dollar up as Spain problems keep pressure on euro.
The greenback pulled back a bit as U.S. stocks turned mostly higher, led by a rally in financial shares.
Deutsche Bank strategists aren’t expecting long-term weakness for gold, mainly due to the recent performance of the U.S. dollar.
The strategists said that, if investors were moving to take risk off the table, then such a move would be compatible with a rising dollar. This has not been a feature of currency markets over the past week, they said.
“We would therefore view the weakness in gold and silver as likely to be short-lived,” they said. The strategists believe the U.S. dollar could weaken before the end of the year. Such a move in the U.S. currency would likely be beneficial for gold, as commodities that are priced in dollars — including gold — tend to move inversely to the dollar.
Concerns about the billions of dollar in spending cuts and tax hikes set for the start of the year remained in the spotlight.
On Wednesday, President Barack Obama rejected a nascent Republican plan that would have extended the bitter fight over the fiscal cliff into next year. See: Obama rejects Republican ‘fallback’ budget plan.
Although Obama has “made a good appearance in his comments on the fiscal cliff and budget dilemmas, gold will depend on visibility into the reaction of equities to the fiscal cliff,” said Richard Hastings, macro strategist at Global Hunter Securities. “If there is a bunch of equity selling in January, then gold will be under pressure temporarily.”
In other metals trading, silver for March delivery SIH3 +0.48%  turned higher again, to trade 9 cents, or 0.3%, higher at $32.90 an ounce, while March copper HGH3 +0.77%  rose 3 cents, or 0.9%, to $3.69 a pound.
January platinum PLF3 +0.20%  added $1, or 0.1%, to $1,583.90 an ounce, and March palladium PAH3 +0.59%  rose $3.45, or 0.5%, to $686.15 an ounce.
Myra Saefong is a MarketWatch reporter based in San Francisco. Follow her on Twitter @MktwSaefong. Sarah Turner is MarketWatch's bureau chief in Sydney. Follow her on Twitter @SarahTurnerMKTW.

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