Goldman Sachs Calls for Gold Tumble to $1000

Gold is getting more attractive to hedge-fund managers even as Goldman Sachs Group Inc. says the metal’s surprising rally this year will soon fizzle.

Hedge funds and other speculators expanded bets on higher prices for a fourth week in New York futures and are now the most bullish since December 2012, government data show. While gold is off to its best start in six years after topping $1,350 an ounce, Goldman’s Jeffrey Currie says chances are increasing that prices will slump to $1,000 for the first time since 2009.

This year’s 11 percent rally came amid signs of weakening U.S. economic growth and Russia’s incursion into Ukraine. Investors who shunned the metal in 2013 are once more buying the biggest exchange-traded product backed by gold, with holdings poised for the first quarterly gain in a year. Hedge funds also are adding to bullish wagers on sugar, corn and coffee, driving combined wagers on a commodity rally to a record.

“The gains have been impressive,” said Chad Morganlander, a fund manager with Stifel Nicolaus & Co Inc. in New Jersey, which oversees about $150 billion of assets. “There’s been a perfect storm of geopolitical uncertainty as well as growth scares here in the U.S.”

Weekly Gains

Gold futures in New York climbed 1.3 percent last week, the eighth advance this year. The Standard & Poor’s GSCI Spot Index of 24 raw materials rose 0.6 percent, while the MSCI All-Country World index of equities increased 0.3 percent. The Bloomberg Dollar Index, a gauge against 10 major trading partners, slipped less than 0.1 percent and the Bloomberg Treasury Bond Index dropped 0.7 percent.

The net-long position in gold climbed 3.8 percent to 118,241 futures and options in the week ended March 4, U.S. Commodity Futures Trading Commission data show. Short holdings declined 15 percent to 26,321, the lowest since October. Net-bullish holdings across 18 U.S.-traded commodities rose 9.7 percent to 1.59 million contracts, the most since the data begins in June 2006.

U.S. service industries, which range from health care to finance and make up almost 90 percent of the economy, grew last month at the slowest pace in four years, data from the Institute for Supply Management showed March 5. Holdings through gold ETPs rose in February for the first time since 2012. Assets in the SPDR (GLD) Gold Trust, the biggest such fund, are up 0.9 percent in 2014 after a 41 percent plunge last year that wiped $41.8 billion in value.

Billionaire Paulson

Billionaire hedge-fund manager John Paulson, who holds the biggest stake in SPDR, posted gains in his firm’s main strategies in February partly as bets on gold paid off.

Russia said it may cut off Ukraine’s gas supplies, and the U.S. has threatened more sanctions after authorizing financial restrictions last week. The escalating tension also drove up prices for energy and grains amid concern that supplies would be disrupted.

The turmoil in Ukraine doesn’t change Goldman’s bearish view on gold, and the recent weakness in the U.S. economy is probably weather driven, not “real deterioration,” said Currie, the bank’s head of commodities research. Lower mining costs mean it’s more probable than it was six months ago that prices will drop below $1,000, he said in an interview.

February Payrolls

American employers added more workers than projected in February, indicating the U.S. economy is starting to shake off the effects of the severe winter weather, government data showed March 7. The China Gold Association says demand in the nation is poised to drop to 250 metric tons this quarter, down 17 percent from a year earlier.

“Some kind of middle-ground solution in Ukraine is probably the case at some point,” said Rob Haworth, a Seattle-based senior investment strategist at U.S. Bank Wealth Management, which oversees $115 billion. “For the two big commodities, oil and gold, we’ve probably seen relative highs for the next month. Once this geopolitical risk premium ebbs, I don’t see a lot of fundamental speculative support to push gold a lot higher.”

Bullish bets on crude oil rose 2.2 percent to 346,469 contracts as of March 4, the most ever in records going back to June 2006, government data show. West Texas Intermediate reached $105.22 a barrel in New York March 3, the highest since September. Russia is the biggest energy exporter.

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The Impact of Federal Stimulus Measures on the Price of Gold

The Impact of Federal Stimulus Measures on the Price of Gold

 

Historically, the value of gold and fluctuations in its price have been linked directly to the wider economic performance. As a general rule, the value of gold tends to be most resolute during periods of recession, as investors look to commit their capital into physical assets that deliver genuine financial security.

 

The most recent statistics underline this trend, with the price of gold set the retreat from a near three-month high in the face of measured stimulus tapering in the U.S. A string of poor data releases had forced the government to initially reconsider their approach to stimulating economic growth, only for the Federal Reserve to reaffirm their commitment to restoring long-term growth.

 

The Facts and Figures: Gold Values in 2014

 

It was during the last week that the price of gold hit a three-month high, amid rising global shares and continued economic uncertainty in the U.S. While the Federal government had spoken at length during the first financial quarter about tapering their stimulus measures and laying the foundations for more sustainable, long-term growth, underperformance within the labour market has persuaded them to reconsider their stance. As a result on this, investors were encouraged to believe that the ultra-easy stimulus policy would continue for the foreseeable future.

Incoming Federal Reserve Chair Janet Yellen performed a sharp-about turn this week, however, by reiterating the U.S. Central Bank’s commitment to a measured tapering of its gold-friendly stimulus policy. While Yellen has stated that has a strong belief in the current bullion and monetary policy measures, however, the sudden drop in gold prices has forced many to question the wisdom of her decision making. More specifically, it could trigger a sudden rise in interest rates and force investors to develop a more risk-averse approach in the financial markets.

Does Gold Represent a Good Investment in 2014?

The decision to taper bullion stimulus measures will only serve to undermine the appeal of gold as an investment opportunity still further. While the presence of under-employment may have caused growth in the labour market to slow, investors have continued to disregard this and similar macroeconomic factors as being insufficient to derail the tentative global recovery. This has had a direct impact in reducing the appeal of gold, and the sudden depreciation in value will force a growing number of investors to consider alternative precious metals and commodities.

If it would be fair to say that gold holds minimal investment appeal as we approach the second financial quarter of this year, however, it is worth considering the performance of additional market options such as silver and platinum. The former, which has experienced considerable growth during the last eighteen months fell by 0.3% in the wake of recent events, while the latter gained a respectable 0.1% amid global political issues. The upshot of this appears to be that investors are likely to avoid the precious metal market for the foreseeable future, at least until the U.S. economy has adapted to its new monetary policies.

Canaccord Precious Metals Update

JUNIOR PRODUCER Q4/13 SCORECARD: RECALIBRATING OUR PRICE
DECK TO THE FORWARD CURVE
 For the junior precious metal producers, we have calibrated our forecasts to our updated forward curve price deck, consistent with the deck used for the senior producers.

 Our revised price deck is summarized below. Since our last update in October 2013, the long-term forward gold price has declined 3%, from $1,439/oz to $1,391/oz. Curve pricing for major by-products copper and silver have also declined, approximately 4% and 9%, respectivel.
 On the other hand, we have seen a year-to-date recovery in junior gold equity prices as highlighted by an 18% increase in the GDXJ (surprisingly outperforming the gold price which is up only 4%). We believe this reflects renewed investor interest in the space, capital inflows into the gold sector and likely increased levels of investor risk tolerance. While we have maintained the upper end of the range of target multiples for junior producers at 1.1x, we have increased the lower end of the range from 0.4x to 0.5x, reflecting increasing levels of investor risk tolerance for equities with operational/financial challenges.
 We remain positive on bullion longer term, but see the potential for significant volatility in the gold price over the next 12 months. While we see greater upside to gold equities relative to bullion, we continue to recommend investors stay defensive and choose quality over leverage. We favour companies with quality assets, strong balance sheets and relatively lower risk profiles –
i.e., producers that could generate and grow free cash flow even in the current depressed gold price environment.
Rating changes in this report include Argonaut Gold (BUY from Hold), Endeavour Mining (BUY from Speculative Buy), Fortuna Silver (BUY from Speculative Buy), and Sandstorm Gold (BUY from Speculative Buy).

Target prices have been revised lower for most stocks under coverage with the exception of higher target prices for NGD, AR, AUQ, DGC and PAA. Canaccord Genuity Canadian Focus List Picks include B2Gold, Primero Mining and Fortuna Silver Mines.
 Our Q4/13 estimates have been updated to reflect actual metal prices during the quarter and pre-released operating results. In general, we are expecting a sequential and y/y decline in earnings (due to lower gold and silver prices). Our Q4/13 EPS estimates are notably below consensus for NGD, AUQ, EDV and PAA.

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1oz 1984 Krugerrand Transferred from en.wikipedia1oz 1984 Krugerrand Transferred from en.wikipedia (Photo credit: Wikipedia)

1oz 1984 Krugerrand Transferred from en.wikipedia (Photo credit: Wikipedia)

Why Invest in Gold and Gold Stocks – and Why Now ?

Historically, gold has been a proven method of preserving value when a national currency was losing value. If your investments are valued in a depreciating currency, allocating a portion to gold assets is similar to a financial insurance policy. In the past year, the climb in the price of gold above $1600 per ounce is due to many factors, one being that the dollar is steadily losing value.

  • The dollar is weak and getting weaker due to national economic policies  like quantitative easing , which don’t appear to have an end.

Barrick Gold SELL

ABX : TSX : C$19.82
ABX : NYSE
SELL 
Target: C$17.50

COMPANY DESCRIPTION:
Barrick is the largest gold producer in the world and has
a portfolio of operating mines and development projects
located in the United States, Canada, Australia, Peru,
Chile, Argentina, and Tanzania. In 2012, the company’s
operating mines produced 7.42 million ounces of gold, at
total cash costs of $584 per ounce.
All amounts in C$ unless otherwise noted.

Metals and Mining — Precious Metals and Minerals
FORECAST 2014 PRODUCTION 11% DOWN,  RESERVE LOSSES AT 18%
Investment recommendation
Our target price has been revised from C$20.50 to C$17.50 to reflect the
recent shift lower in the gold forward curve and to reflect our estimate
of potential reserve and mine plan changes at YE13. This report
provides an analysis of potential YE13 reserve changes on an asset by
asset basis. Based on the implied negative return to target, we have
revised our rating on Barrick from Hold to SELL.
Investment highlights
 Barrick is developing new mine plans to reflect a lower gold price
environment and maximize cash flow. We estimate 2013 gold
production at 6.36mozs, 11% lower sequentially. Cash operating
costs are expected to be only modestly lower at ~$585/oz.
 We estimate that operating reserves (excluding development assets)
will have declined ~18% at year-end. While reserve grades could
potentially increase ~11%, we note that Barrick has been mining
~19% above reserve grade over the past four years.
 Our 2013 EPS and CFPS estimates have been revised to $2.30 (from
$2.32) and $3.23 (from $3.07), respectively.
Valuation
We have revised our target price from C$20.50 to C$17.50, which is
predicated on an above sector average 0.90x multiple to our forward
curve derived operating NAVPS estimate of C$22.34 (from C$25.65) plus
net debt and other assets. Our target multiple fully reflects Barrick’s
numerous positive attributes; we just do not see the value proposition
for Barrick at current metals prices. Barrick is currently trading at a
27% premium to its gold peers on NAV. Near term positive free cash
flow is expected to be largely utilized to finish constructing Pascua.

 

Tahoe Resources Inc.

THO : TSX : C$19.93
TAHO : NYSE
BUY 
Target: C$27.00
COMPANY DESCRIPTION:
Tahoe Resources’ key asset is its 100% owned flagship Escobal mine in Guatemala. Escobal is one of the world’s highest grade and largest primary silver deposits. Silver production is expected to ramp quickly and exceed 20mozs per annum for a period of at least 10 years with a stated goal of 20 years. Cash operating costs are forecast to be near or below $5.00/oz of silver net of gold, zinc and lead by-product credits.

Metals and Mining — Precious Metals and Minerals
COMMERCIAL PRODUCTION Q1/14E
Investment recommendation
We reiterate our BUY rating on Tahoe Resources following the release of Q3/13 results. We believe the key driver of Tahoe’s share price over the next six months will be the successful ramp up of Escobal to full production and we see no major impediments. THO is currently trading at 0.75x NAV, a 3% discount to its large cap peers. We believe THO should trade at a strong premium given the forecast industry leading margins, strong governance and alignment, and overall asset quality.
Investment highlights
 The ramp-up to commercial production is proceeding well with all major mill components fully commissioned. The key remaining priorities are improving concentrate specs and tailings filtration; fixes have been implemented and appear to be working. The mill operated near 50% of capacity in the first 10 days of November vs. 30% in October. We estimate commercial production in mid-Q1/14.
 Guidance for 2014 calls for 18-21mozs silver in concentrate (including pre-commercial production) versus our previous estimate of 15mozs. Cash costs are estimated to be $5.65-6.25/oz versus our previous estimate of $4.02/oz (using the same by-prod prices). The current cash balance of $39 million appears adequate. Our 2014 EPS estimate remains unchanged at $1.00.
 Management confirmed the potential for an inaugural dividend; potentially by the AGM in May 2013. We believe an initial dividend of $0.50/share (implying a 2.5% yield) may be achievable in the context of current silver prices. The current short position on THO is 22.5 million shares.
Valuation
Our C$27.00/share target is predicated on a 0.95x multiple to our forward curve derived operating 5% NAVPS estimate of C$26.32 plus net debt and other assets.

B2Gold ( BTO)

BTO remains our top small cap pick in the gold sector – despite the fact we sold out our position at $ 3.25

Canaccord has an update – bull case – for the stock:

B2Gold* (BTO : TSX : $2.29), Net Change: 0.15, % Change: 7.01%, Volume: 8,240,020
Nice moves. Shares of B2Gold moved strongly higher Tuesday, as did the price of gold. Recently, Canaccord
Analyst Rahul Paul reiterated his bullish rating on BTO, noting that Q3/13 marked a very strong quarter highlighted by better than budgeted performance at all assets.

Following the completion of several capital initiatives such as the development of Jabali/Santa Maria and completion of expansions at both Libertad and Limon, Paul expects further quarterly production
increases going forward. With the expected commencement of production at Otjikoto in late 2014, Paul expects further production growth and a decline in costs leading to possible re-rating over the next few years

He sees further exploration/expansion upside potential from Otjikoto and Masbate and potential upside from the advancement of other projects in the company’s pipeline. In the near-term, Paul expects potentially strong Q4/13 operating results and an expected positive initial resource on Wolfshag (late 2013E /early 2014E) to serve as the key potential catalysts for the stock.

Goldman Sachs Forecasts Multiple Commodity Drops – Gold to $1000

The risks are strongest for iron ore and follow increases in supplies, analysts including Jeffrey Currie wrote in a report yesterday that identified the New York-based bank’s top 10 market themes for the coming year. Price pressures will mostly become visible later in 2014, the analysts wrote, forecasting that bullion, copper and soybeans will decline to the lowest levels since 2010.

Commodities tracked by the Standard & Poor’s GSCI Index lost 5 percent this year, led by corn as supplies surged, and precious metals on expectations the Federal Reserve will taper stimulus. Goldman described the forecast losses for iron ore, gold, soybeans and copper as significant, and said that they could help weaken currencies in producing countries, including the Australian dollar and South African rand.

“Last year, we pointed to the ongoing shift in our commodity views, ultimately towards downside price risk,” the analysts including Currie wrote. “The impact of supply responses to the period of extraordinary price pressure continues to flow through the system.”

Gold, which was at $1,245.90 an ounce on the Comex at 4:33 p.m. in Singapore, will drop $1,050 at the end of next year, Goldman said in the report, restating an earlier forecast. Currie said last month that gold is a “slam dunk” sell for next year as the U.S. economy extends its recovery.

Annual Drop

Bullion is headed for the first drop since 2000 this year as investors cut holdings. Futures lost as much as 2.6 percent yesterday after the Fed signaled that tapering may start in the months ahead, according to minutes from its October meeting.

Soybeans are seen by Goldman at $9.50 a bushel by the end of 2014, from $12.7775 in Chicago today, while corn will retreat to $3.75 a bushel from $4.255. Copper will drop to $6,200 a ton from $6,989.25 on the London Metal Exchange.

A global seaborne iron ore surplus will emerge next year as supply increases over the second and third quarters, Goldman Sachs said in a separate report last month. Prices will average $108 a ton in 2014, it said in the Oct. 18 note. The raw material averaged $135 this year at Tianjin port in China.

While downside risks for energy prices will increase next year, the outlook is more stable than for iron ore, gold and copper, Goldman said in yesterday’s report. Brent crude is seen at $105 a barrel at the end of 2014 from $108.01 today.

U.S. Recovery

“We expect the long-awaited shift towards above-trend growth in the U.S. finally to occur, spurred by an acceleration in private consumption and business investment,” the Goldman analysts wrote yesterday. At the Fed, “we expect a gradual tapering in bond purchases to begin, most likely in March.”

Sprott Physical Gold

Gold Buddha

Gold Buddha (Photo credit: @Doug88888)

Gold (GC : NASDAQ : US$1415.40), Net Change: 22.30, % Change: 1.60%, Volume: 146,830
Sprott Physical Gold (PHYS : NYSE : US$11.84), Net Change: 0.11, % Change: 0.93%, Volume: 1,469,493
Go for torque, go for quality or go for the physical? Worries about a potential U.S. military strike against Syria sent oil and
gold prices higher on Tuesday. After almost a 30% fall in the gold price (peak to through) in H1/13, all gold producers without
exception have had to adjust to the new environment.

Even producers with a better quality asset base have had to improve their working capital management, adapt exploration budgets, and in some cases postpone/suspend lower priority development projects. Higher cost producers, have had to come up with new business models (new mine plans) in order to survive in the world of lower gold prices. Higher leveraged companies have had to go even further by postponing key capital projects and searching for alternative ways to generate cash (non-core asset sale for example).

Over the past month, gold shares have recovered some of their losses following the rebound in the gold price and more clarity on managements’ revised plans. At this stage, it is important to look at gold equities by evaluating a number of key parameters in order to select those companies that are best positioned to weather likely higher gold price volatility in the near term without needing to make significant changes to their growth plans and/or business models.

Investors should more on defensive gold equities with a low-cost asset base, low leverage and the ability to deliver development plans even in a volatile gold price environment. Barron’s published an interesting technical comment on gold this week, “the [gold] market negated its June breakdown and now has its sights set on a much more important feature – the former price floor in the $1,542 an ounce area…If gold can reclaim that level, it would be a 30% gain and a bull market by definition.”

Separately, it is worth noting that Sprott Physical Gold Trust now trades at NAV or at a slight discount. Historically, PHYS’s premium/discount to NAV (since inception on February 25, 2010) has ranged between a discount of 2.49% (May 27, 2013) and premium of 23.68% (May 25, 2010).

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Stock Market Magic: Building Your Apprentice Millionaire Portfolio 2012: All you need to succeed in today's stock market

Available at http://www.amazon.com

Stock Market Magic:

Building Your Apprentice

Millionaire Portfolio

 All you need to succeed in today’s stock market [Paperback]

Jack A. Bass (Author)

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All You Need To Succeed – in 500 pages of Investing Strategy and Selections


Stock Market Magic: Building Your Apprentice Millionaire Portfolio 2012: All you need to succeed in today's stock market

Available at http://www.amazon.com

Stock Market Magic:

Building Your Apprentice

Millionaire Portfolio

 

 All you need to succeed in today’s stock market [Paperback]

Jack A. Bass (Author)

5.0 out of 5 stars  See all reviews (2 customer reviews) | Like 1678

Price: $28.95 & this item ships for FREE with Super Saver Shipping
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