"Gold Price To Suffer a Tremendous Drop" says Goldman Sachs: Mish Says "This Is a Buy Signal"

It frequently pays to treat Goldman Sachs as a contrarian indicator. This is another one of those times.

In a report Monday, Goldman Sachs technical analysts, Sheba Jafari and Jack Abramovitz said that they see gold prices falling to $1,100 an ounce after the market was unable to test key resistance around $1,380 an ounce, which they noted represented a key level from the 2011 high to the 2016 lows.

"If true, it’s on track to forming another three wave decline which at very least comes close to testing the previous lows from Dec. ’16 at 1,123," the analysts said. "It could extend as far as 1,105; but shouldn’t run much further than there (given the corrective nature of the setup)."

In the current technical environment, the analysts said that gold could eventually retest support around $1,100 an ounce, however, they said that they expect that support to hold.

Goldman Sachs has been fairly bearish on gold, even as prices pushed to a one-year high last month. In a September report, the investment bank maintained its outlook that gold prices will end the year at $1.250 an ounce.

The bank’s reasons for being bearish gold is that it expects the U.S. dollar to shake off recent weakness. Monday, the U.S. dollar index continued to hold near a 10-week high Monday as expectations for a December rate hike rise significantly.

Goldman Doesn't Understand Gold

Goldman Sachs' superficial comments prove they do not understand gold.

Gold is not a play on the dollar or rising or falling interest rates. Gold fell from 850 to 250 with inflation (and interest rates falling) every step of the way.

More recently, gold started rising just as the Fed began hiking. In 2005, gold rose with the US dollar.

Gold Does Well in These Environments

  1. Deflation
  2. Hyperinflation
  3. Stagflation
  4. Decreasing faith that central banks have everything under control.
  5. Rising credit stress and fear of defaults

Gold Does Poorly in These Environments

  1. Disinflation (1980 to 2000 is a perfect example. There was inflation every step of the way but gold got clobbered).
  2. Increasing faith in central banks’ ability to keep things under control (Mario Draghi’s “Whatever it takes” speech triggered a prime example)

Gold does worst in prolonged disinflation and in periods that have rising faith in central banks.

I suppose one could condense this all down to increasing or decreasing faith that central banks to have everything under control. Alternatively one might think of periods of rising or abating credit stress.

Gold vs. Faith in Central Banks

For additional images, please see my 38 slide powerpoint Venture Alliance Presentation on trends in sentiment, asset bubbles, and gold from June 24, 2017.

Related Articles

Mike “Mish” Shedlock

Comments (9)
No. 1-9
RobinBanks
RobinBanks

Clearly, Vlad doesn't follow the Squid's investment advice.

Stuki
Stuki

$1380 to 1100 a "Tremendous drop" for something neither of those guys (nor anyone else) have the most rudimentary tools for evaluating the proper price of to begin with...... It was $250 in 2000, $40 when Nixon sold the last remnants of America out less than 50 years ago.... Makes about as much sense as calling a drop in the price of Botcoin from $5000 to $4500 "tremendous." And to $4000 "catastrophic...." But I guess that's just par for the course for someone who have spent their entire life and career worrying, or at least trying to make others worry, about imaginary hobgoblins they need governments,central banks and "financial systems" to pjotekt them from.....

opusnz
opusnz

Whenever someone like Goldman uses the word "wave" in an analysis I tend to discount what they say.

wootendw
wootendw

I Googled "goldman-sachs" gold and no major news publication was carrying the 'story'. Kitco is has a great site for metals and I look at the gold price every morning on my Kitco smart phone app. But Kitco is not journalism. We'll have see when this gets into real (fake) news.

RedQueenRace
RedQueenRace

Although they listed factors such as the dollar, the price call was based on technicals. They are saying "it couldn't even reach resistance and we therefore expect it to fall to support." I use technicals in this biz and would not state that. The run to 1362 put gold in a very overbought condition that it "needed" to work off. I shorted it with DTO because of that overbought condition and have covered during the decline as there is no reason why it has to go all the way back to support. It is just as likely it is working off the overbought condition and could rise to the 1380 resistance level when weaker longs have been shaken out. Also, they appear to be using EWT, a technique I don't hold in high esteem. About the only thing I agree with regarding EWT is that the market moves in waves, but that is a "duh" type of statement. Of course the market moves in waves - it goes up, then it goes down, then back up again. Other than flatline, which it does not do, it can't do anything else. I stop when they believe they can predict the waves ahead of time. If the targets are not met and the market does something else they will have "had the wave count wrong." Yet another "duh" statement. Once all the data is in the wave counts are obvious. But good luck predicting them a priori.