RE:POG holding with a strong USD index Goldman Is Getting Nervous: "There Are Significant Risks To Our Forecast For Gold Price Weakness"
Submitted by Tyler Durden on 10/21/2015 20:17 -0400
Actually, no. The biggest reason for the recent surge in gold is a direct consequence of the Fed losing credibility, and confirming yet again that the market calls all the shots, even it means debasing the dollar and sacrificing the reserve currency. In other words, it means that the more Yellen avoids renormalizing monetary policy - and since she is trapped, even the most modest rate hike will lead to an immediate rate cut and/or QE, just like in the Japan experience from August 2000, the higher gold will rise.
Goldman admits as much:
Looking ahead, our economists continue to expect a 25 basis point rate hike at the December FOMC meeting, and for a further 100 basis points of rate increases during 2016. The Fed leadership has signaled that such a move is likely if the economy and markets evolve broadly as expected, and our economists’ forecast is similar to theirs. However, they are only about 60% confident. Most of the uncertainty relates to the possibility that the economic and market environment – or in a broad sense, “the data” – will be worse than the FOMC’s (and our) expectations.
The low market-implied probability of a December hike of only 30%-40% probably reflects a mixture of concerns about the data (which we find reasonable) and a belief among some market participants that the FOMC will find an “excuse” to stay on hold even if the economy does fine (which we find unreasonable). The low market-implied probability is not a problem now, but Fed officials will need to find a way to move it much higher by the time of the meeting if they really do want to hike.
The Fed’s rationale for wanting to start the normalization process is straightforward. In their view, labor market slack has diminished substantially, the link between slack and inflation is stronger than widely believed, and the funds rate is far below the longer-term equilibrium rate, so they need to get started well before the economy is back to normal.
Goldman also finally admits that 7 years after it started, central-planning is not going quite as planned, with the biggest "risk" being another major move higher in the price of gold:
While our base case remains for higher US real rates and lower gold prices, there are significant risks that our forecast for gold price weakness is pushed out, should the Fed surprise us and remain on hold in December.
So in light of all this information, what does the TBTF hedge fund with the FDIC backstop want you to do? Why sell it to Goldman of course!
Indeed, notwithstanding the fact that the “new normal” equilibrium in interest rates remains uncertain, a plausible range of scenarios all imply lower gold prices. Overall, our forecasts are unchanged, however we roll our forecasts along the existing price forecast path, such that our 3/6/12-month forecasts are $1,100/oz, $1,050/oz, and $1,000/oz, respectively.
Right - so Goldman, which has been almost as wrong about its "economic recovery" forecasts as the Fed, not only is confident that "this time" it will get it right, but that gold will plunge even though in the sentence right before it the central banker-spawning hedge fund admits there as "significant risks" that its gold forecast will be "pushed out"... which is economist talk for "wrong."
And just in case Goldman is wrong, it would love to rid you of any barbaric relic you may currently have. So run, sell it all now, before it plummets to $1,000 or lower in the coming months. You won't even have to look far for a willing seller: Goldman will buy all you have to sell.