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Goldman Sachs Remains Bearish On Gold

By:
Barry Norman
Published: Feb 11, 2016, 00:31 UTC

Investors around the globe cued into Janet Yellen’s statement and testimony today. Every speculator and analyst tried to find meaning to every word

Goldman Sachs Remains Bearish On Gold

goldman sachs
Investors around the globe cued into Janet Yellen’s statement and testimony today. Every speculator and analyst tried to find meaning to every word uttered. Gold bounced around but held on to most of its gains earned this week and is holding to the 1205 level. Silver took its cues from gold to trade at 15.36 adding 48 points in the Asian session. Platinum was the surprising precious metal with the least declines at 938.85. A good deal of traders sold off yesterday to book fast profits.  Gold was weaker as US Federal Reserve chair Janet Yellen said little to suggest she was about to do a U-turn on its rate tightening strategy despite recent equity market turmoil. Gold traders moved back to positive numbers after Yellen’s testimony.

gold prices

Most economists expect rates to go up twice or maybe three times more this year, which should lift bond yields and the US dollar both of which are traditional counters to the metal.  Yellen told the House of Representatives Financial Services panel that conditions “have become less supportive to growth” but added the US economy could cope and grow at a moderate pace without much damage, or even “exceed our projections.” It was a bit more cautious than previous comments, but not by enough to point to a change of heart at the Fed, said traders.

Earlier in the day gold rose for an eighth session out of nine on Wednesday, climbing towards a 7-1/2-month high as investors sought the safe-haven asset amid tumbling stock markets and concerns about the global economy.

Global equity markets have been hit by worries over the health of the euro zone banking sector, with a very loose monetary policy seen crimping bank profits and consequently their ability to repay debt.  That has triggered a rally in bullion, along with other safe-haven assets such as government bonds and the Japanese yen.

gold

$1,200 is a key resistance level; many traders will look to book profits at that level, thinking it will take two to three times, to test that level before breaking through, if gold manages to break through $1,228, then “sky’s the limit” for the metal, with a possible $1,250 – $1,300 scenario.

Gold, after posting its biggest rally to start a year since 1980, will drop this month as Chinese consumers slow purchases that surged before the start of the Lunar New Year, according to eight of 12 analysts surveyed by Bloomberg. Prices that touched a seven-month high of $1 200.97 an ounce on Monday may drop to $1 100, based on average estimates from seven analysts providing forecasts.

After three straight annual declines, gold surged in 2016 as investors sought a haven from slumping equities and weaker economies, while Chinese consumers purchased gifts before the Year of the Monkey began on Monday. But seasonal buying in China, which accounts for more than a quarter of global demand for gold jewelry, usually drops off as shops close for at least a week of holidays, removing a source of price support. Over the past decade, gold’s biggest monthly gain on average was in January, with small advances in February and losses in March.

gold technicals

Goldman Sachs reiterated its December forecast that prices will drop for a fourth straight year, dipping to $1 000 by the end of 2016. The bank expects the Federal Reserve to increases US interest rates no fewer than three times, eroding the appeal of the metal because it doesn’t pay dividends like bonds or stocks.

While Goldman is forecasting higher US interest rates, investors have scaled back expectations for increases this year as global equity markets sank, oil extended losses and China’s economy slowed. There’s now no chance of an increase next month, down from the 51% odds seen at the start of the year.

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