What a bunch of jokers at Goldman Sachs! In April, they were advising their clients to sell their gold, as they were expecting an important decline in its price. And, effectively, in the following weeks, the price of gold fell. Those who had followed their advice thought they made a good deal.
However, the price of gold seems to have hit bottom, at the end of June, at $1,200/oz, and it’s been going up with regularity since, reaching around $1,400 this week. Increasing worries on most markets (emerging, bonds, stocks), not to mention Syria, are creating, of course, a favorable context for gold. And since most central banks keep printing around the world (the Fed doesn’t even know how to get out of its QE), we can be very confident on the mid- to long term.
Those who sold their gold just after Goldman Sachs announced their predictions must now realize they have pulled the trigger a bit too soon. That’s one thing. But what’s worse is that, according to Zero Hedge, the bank started, at the same moment, to buy gold! Since April, « The Firm » has scooped enough gold ETFs to become the 7th largest holder in the world. It is now in a position to largely profit from the future rise in the price of gold.
However, those clients who were duped should have taken a deeper look at what was happening. Had they done so, they would’ve realized that prices fell because of massive paper gold selling, to « break » the market, while physical gold sales kept growing constantly. The right thing to do was not to worry about these weak prices. Goldman Sachs played its cards well, on the back of its own clients, but those who kept their gold or took this opportunity to buy some more (and there’s still time to do so) have done equally well.
During the first quarter, the Fed and the economic authorities were selling us a vigorous economic recovery and, in that scenario, the drop in the gold price served as a glaring signal of the return of confidence, even though it was a bit under-handedly « helped ». But, on June 20th, the Fed announced it would eventually taper its QE, and the Dow Jones fell on the news. Since then, this major index has been see-sawing back and forth, and we see a lot of hesitation. At the same time, the emerging markets have lost their appeal and there is lots of talk about a bond bubble. The Fed is busy with other matters, some of them very hot (including the succession of Bernanke), and gold is starting to rise, slowly.
This drop in the price of gold in the first quarter of this year, though significant, will no doubt seem very soon like a glitch, a short pause. The price of gold really started to go up in 2002 when the Fed implemented its laxist policies and now the central banks are stuck with their printing presses, because the « recovery » is not happening. Consequently, gold will keep rising, slowly and surely.
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Philippe Herlin Finance Researcher / Member of the Goldbroker Editorial Team
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.