12 October 2010, 9:56 a.m.
By Kitco News
http://www.kitco.com/
(Kitco News) - Goldman Sachs has raised its 12-month forecast for gold to $1,650 an ounce, citing expectations for further quantitative easing in the U.S. and prospects for long-term interest rates to continue falling.
“With U.S. real interest rates pushing lower off the slowdown in the pace of the U.S. economic recovery and the growing prospect of another round of quantitative easing, we expect gold prices to continue to climb,” said the Goldman report, authored by David Greely and Damien Courvalin. “Despite the rebound in net speculative length, it remains well below levels consistent with the current low U.S. real interest rate environment.”
Goldman said the decline in U.S. real interest rates is likely to persist, and rates could push even lower in the near term should the Federal Reserve undertake quantitative easing measures. Thus, Goldman said it is raising its gold price forecasts to $1,400, $1,525 and $1,650 on a three-, six- and 12-month horizon. Goldman said its updated forecasts point to an average of $1,575 an ounce in 2011, which is $175 higher than it previously expected.
“The return to quantitative easing will likely be a strong catalyst to drive gold prices higher, and we expect the gold price rally to continue until U.S. monetary policy begins to tighten,” Goldman said.
The bank’s economics team expects the Fed to return to quantitative easing with purchases of U.S. Treasury securities of $1 trillion, which in turn should keep U.S. bond yields depressed. Furthermore, the bank said it expects the announcement at the Federal Open Market Committee’s Nov. 2-3 meeting.
Goldman said the rally since August came as the yield on 10-year U.S. Treasury Inflation-Protected Securities plummeted, with the yield now closer to the 0.50% than the 1.0% imbedded in prior forecasts. It also cites stronger demand for the metal for gold exchange-traded funds and from central banks.
However, while Goldman said gold could rally for an “extended period,” it also sees a “considerable downside risk” in the longer term, should the Fed eventually tighten monetary policy earlier than expected.
For now, Goldman said, its U.S. economists suggest that it could take until 2015 or longer before a rate hike becomes “appropriate,” although they emphasize this is not a “formal forecast.”
“While they do not expect tightening to happen before 2012 at the earliest, we view an earlier-than-expected tightening of U.S. monetary policy as the primary downside risk to our gold price forecasts,” Goldman said.
By Allen Sykora of Kitco News; asykora@kitco.com
6 comments:
I personally wish Gold would slow down .. today the yellow metal hit yet another new high 1366.
The risk is that the price gets overbought and a nasty correction ensues.
If gold can hold these levels .. or even 1100-1200 for that matter for a couple more months CMM will move be taken seriously as a mid tier producer.
There has not been any news or presentation updates since annoucing the date of Q3 results.
In reality .. we have no info on production results for Q3. For all we know the mine has shut down .. but this would be hard to keep quiet :)
In all likelyhood the Lamaque has been trucking along at 1000 tonnes/day .. at at least 3.5-4.0 grams /tonne
At 3500 oz/month out of Lamaque and 1700 oz/month out of San Juan this company is producing 5200 oz/month. At 1300/oz gold this is 6.7 million a month in revenue.
I doubt that total costs exceed this amount so CMM should be profitable for Q3.
Any increase in production or ore grade from these levels will be "pure profit" as the costs are already baked in. The mine is staffed up and capital costs outlayed for 2000 tonnes/day. Any extra money needed to ramp up to this level is marginal.
The main wildcard .. IMO is that the price of Gold has a sharp correction, and investors panic.
I think in the back of Hulleys mind he is thinking .. "Let the whiners and the naysayers wait for the news" Sell your shares at 45 cents because if you are too dumb to see that you are sitting on top of a Gold Mine .. you dont deserve to be a shareholder.
Well said. Though it doesn't look likely to slow in the immediate future. At least not until after the Fed starts its latest round of QE.
I agree as well that CMM should DEFINITELY be profitable for Q3.
With all due respect to the traditional major trading houses in the gold biz (ok, due Fear, but not much respect...), I think that one of the things driving the prices of PM's has a lot to do with every small guy out there doing his best to put any liquid asset he or she has into metal. Whatever the liquidity, cash is becoming more worthless with each passing day. There are almost no governments on the planet right now that have a cooperative, or very wise fiscal policy in place. The net result, along with the usual proselytizers, is that a great deal of available material is being absorbed by households all over the world. I watch a number of auction sites that sell jewelry, sterling silver and bullion. At no time during the past ten years have I seen anything like the bidding participation I have see since August this year. There isn't any need to send off your scrap and pay refining fees - just put it up on Ebay or an equivalent, and 350 people (exaggerated) are going to step up to pay you full spot, maybe with a small premium. What is most interesting right now is that the supply seems to be drying up. Two months ago, there was plenty of material that could be bought for somewhat under spot. Most of what is out there now is material going for spot plus a premium.
I don't think that this micro-demand has been taken into consideration anywhere in the pricing-in of metals in this market, and is likely a strong factor in the meteoric rise of prices. Tiny amounts per trade, perhaps, but on a very large scale.
I agree with Mike, I wish it would slow down too-but this isn't coming from the usual suspects, and the run isn't over yet. I for one am glad to see this, as it may insulate some of us from any prolonged economic downturn-as well as take a little leverage away from the Gb's at LME.
There was an article in the Globe and Mail .. was on Kitco as well .. talking about Gold and Gold stocks as a percentage of Total equities.
In 1929 it was roughly 25%
In 1945 it was roughly 28%
In 1981 it was roughly 21%
In 2009 it was 0.8 %
Yes .. that is not a typo .. less than 1%
Gold and Gold stocks will at some point comprise at least 15% of the total equities in terms of dollar value.
Obviously the movement of money into Gold and Gold assets can go a long way from here.
People say this is a bubble .. and I agree .. it will be at some point .. but it will get to way above these levels before popping.
Unfortunately the time horizon on these events is hard to predict .. could take 10 years or more.
Things seldom go strait up or strait down .. Long term I am bullish for Gold .. short term however we could have a correction.
Then again .. With the US and Europe devaluing thier currencies through "Quantitative Easing = printing money out of thin air .. and using that money to buy thier own treasury bills in an effort at stabilization" Gold may be not have much of a retracement.
Gold is viewed by many .. who know much more than I .. as the canary in the coal mine for the demise of fiat money stability.
I will not venture to predict where gold is going next .. but one thing I can say for sure .. is that money does not grow on trees.
I am a student of cycles in history and what is happing now is far from new. The last 3 world economic empires (Deutch, Spanish, British) all did the exact same thing prior to collapse.
Increasing debts .. printing money (quantitative easing) results in devaluation of the paper ..
The money has to go into something that cant be printed in a printing press .. historically this has been Gold .. chances are it will be Gold this time again.
cheers all
Mike
So a "low" normal evaluation would put us at ~ 1.5.
And applying the above factor of 20 gets us to $30.
Could I possibly keep from selling half my shares before that?
Peter
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