Wednesday, March 26, 2014

"CEO Technician" is not an economist, he is a technician. - Goldman's bearish gold call. Quote:

Goldman is forecasting an acceleration of US economic growth which should in turn lead to higher US real interest rates and strong headwinds for the gold price. GS has posted a $1,050 12-month price target for gold, which if it comes true, would bring gold back to test important support from early-2010.

From our vantage point, Goldman’s bearish gold call is unlikely at best and rests on several improbable macroeconomic variables all occurring (or not occurring…) at once:

■Accelerating US economic growth while emerging markets and China continues to wobble? This is reminiscent of the ‘decoupling’ we heard a lot about circa 2007-2008

■Strong growth without rising rates of inflation

■A 50-100 bps jump in rates not contributing to a significant stock market correction

■China avoiding a hard landing as it comes back down to earth after two decades of extraordinary economic growth and a massive property bubble (the recent copper decline says otherwise….)

■The Russia/Ukraine situation de-escalating while other global hot spots remain calm (Syria, Iran, China/Japan, etc.)

1. Yes, EMs can decouple from the US. Crack open a history book and read about the last secular DM bull/EM bear market pre-2000. Or just read Jim Rogers' Hot Commodities. The EMs are already being killed as high inflation and higher rates strangle their economies; Russia, India and Brazil are already staring at the possibility of 0% growth.

2. An acceleration from the present US growth rate will not result in "strong" growth. It'll result in average growth. Nobody's calling for a US growth explosion in the next 12 months, which is the extent of Goldman's $1050 call.

As an aside, do you really want to be lumped in with the inflationistas who've been calling it wrong for the past 5 years?

3. A 50-100bps jump in rates will cause a bit of a temporary hissy-fit in the stock market, sure, but it will also signify the end of extraordinary monetary policy. Do you really think a UST10Y yield of 4% will instantly destroy America? If so, why didn't it destroy America the last time it was at 4%? And this still assumes the UST10Y can ever even get to 4%; this will require a good hard push from the Fed funds rate, it's not going to happen on its own. And as Yellen recently made explicit, a Fed funds rate rise is not going to happen in the next 12 months, which is the extent of Goldman Sachs' $1050 call.

4. China definitely can avoid a hard landing. It's a borderline DM now, more like Korea than a stone-age open sewer like India. The problem with copper is the gross oversupply.

But wait a sec... did you get that the wrong way round? Did Goldman say that China avoiding a hard landing drops gold to $1050?

China having a hard landing will kill the gold price, since it'll mean a few thousand tons of Chinese gold getting liquidated for scrap into a market where China had been the only buyer. China avoiding a crisis and continuing to grow means Chinese people continuing to buy gold luxuries and allocate money into gold investments.

5. As for "global hot spots"... what did the Ukraine crisis do for the gold price? It tanked it. Look at your own chart: Russian troops are massing on their border and yet gold is threatening to lose $1300 support. That politics crap is no reason to own gold.

There's a reason you're a technician and not an economist, boy. You should stick to bullshitting about charts from now on. People can't tell when a chart "technician" is bullshitting, until after your calls are proven wrong.

As far as I'm concerned? Goldman's call is bullshit, but they might still get the direction right. India's going to have a drought this year, and Modi might not bother to actually drop gold duties.

And all those white folks who bought gold futures expecting the bottom was in might all decide to pile out of the market as fast as they can once gold loses $1300. Just like they all piled out in April 2013.

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