Goldman’s (frequently incorrect) predictions for the price of gold

On Monday, Goldman Sachs’ global head of commodities Jeffrey Currie released a statement urging anyone who would listen to “short gold”, stating, “We maintain our view of rising U.S. rates and hence lower gold prices with a 3-month target of $1100 and 12-month target of $1000.”

It’s not the Goldman is never right. In fact, more often than not, their calls are fairly accurate.

    But when it comes to gold, Goldman has an awful knack for getting it wrong at the absolute worst times:

Case #1: August 14, 2008:
“Goldman Sachs slashed its forecast on gold prices on Thursday, citing overvalued bullion and expected strength of the dollar against major currencies. The U.S. brokerage said it lowered its 3-month outlook to $745 an ounce from its previous view of $890 an ounce. Goldman also cut its gold forecast to $810 from $905 on a 6-month basis and to $740 from $810 on a 12-month basis.

Let’s see how that worked out:
(3-month) November 14, 2008: Price of gold: $743.10 (GS Prediction $745)
(6-month) February 14, 2009: Price of gold: $940.30 (GS Prediction $810)
(12-month) August 14, 2009: Price of gold: $945.85 (GS Prediction $740)

So Goldman was actually correct short-term, but egregiously wrong in the 6 and 12 month forecasts. Moreover, and much more importantly, look again at those dates: Goldman suggested a falling price (akin to a recommendation to “short gold”) right before the financial crisis!!

Case #2: May 14, 2012 :
“Goldman Sachs Group Inc. stood by its forecast for a rally in gold this year, saying the the precious metal will advance to $1840 an ounce over six months as the U.S. central bank marks on a third round of stimulus in June. Gold remains the ‘currency of last resort” according to analysts led by Jeffrey Currie in a report dated yesterday, the same day that prices sank to the lowest level in four moths….

I’ll have to concede that this one was actually pretty right on the money in terms of price, but what I found striking was the words used by Jeffrey Currie (seeing as how he’s the one making the latest prediction as well). My how things change in just 4 short years. No need for that ‘currency of last resort’ now, in fact, “short it!” Everything is fine!!

Case #3 – December 6, 2012:

Goldman has cut its three, six and 12 month forecasts for gold prices to $1825 an ounce, $1805 an ounce and $1800 an ounce respectively. It also introduced a 2014 price forecast of $1750 an ounce, suggesting price growth could tail off. “Our expanded modeling suggests that the improving U.S. growth outlook will outweigh further Fed balance sheet expansion and that the cycle in gold prices will likely turn in 2013.” The bank added however, that with risks to its growth outlook still elevated, especially given uncertainty around the fiscal cliff, calling a price peak was ‘a difficult exercise.'”

Translation: Gold might be topping, but also might not be, but if its going to go down, it won’t go down much.

Let’s see how this one worked out:
(3-Month) March 6, 2013: $1590.00 (GS Prediction $1825)
(6-month) June 6, 2013: $1390.50 (GS Prediction $1805)
(12-month) December 6, 2013: $1238.35 (GS Prediction $1800)

So in this case, while Goldman Sachs was directionally correct, they were about as far off as you can be in terms of the price magnitude.

And last, but certainly not least, Case #4: April 2014

Currie called gold the “Slam Dunk Sell for 2014” stating prices would end the year at $1050 per ounce. Instead, prices ended the year at $1181.00. While gold eventually did fall to $1060, it wasn’t until late 2015.

Pulling it all together, it boils down to this. Goldman essentially predicted gold prices would fall and the dollar would strengthen (in essence an urging not to buy gold – or even potentially short it) at the exact moment when investors should have been buying gold with both hands (2008). Then Currie/Goldman turned around and grossly under-predicted the decline in gold prices in 2013. In fact, if you look at their cautious outlook, and the narrowly bound price predictions contained in their December 2012 statement, any reasonable individual would conclude that they are probably recommending one ‘Hold’ their position in gold. But again, they missed dramatically.

So when Goldman trots out another recommendation to short gold, and that ‘fears are overblown’, I can’t help but wonder if they once again are on the cusp of an extraordinarily bad prediction – like the one they made in 2008. I’m also struck by the inconsistency between this prediction for gold, and Goldman’s prediction of $20 oil. Make no mistake about it, if oil falls to $20 and stays there, the systemic burden will be immense, headwinds to raising interest rates will reach gale force – and it won’t be long until we’re calling gold the ‘currency of last resort’ all over again.

Jonathan Kosares

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