Goldman says it's time to bet against gold as bullion's rally to the highest level in a year isn't justified

Photographer: Jack Guez/AFP via Getty Images

Goldman Channels FDR's `Nothing to Fear' With Sell Gold Call

Ranjeetha Pakiam

Jasmine Ng

February 15, 2016 — 7:10 PM PST Updated on February 15, 2016 — 9:14 PM PST

Share on FacebookShare on TwitterShare on WhatsApp

Share on LinkedInShare on RedditShare on Google+E-mailShare on TwitterShare on WhatsApp

·         New fears, like past fears, are not justified, Goldman says

·         Bullion is seen dropping to $1,000 in 12 months, bank saysShare on Facebook

Share on TwitterShare on WhatsAppShare on LinkedInShare on RedditShare on Google+E-mailShare on TwitterShare on WhatsApp

Goldman Sachs Group Inc. says it's time to bet against gold as bullion's rally to the highest level in a year isn't justified, backing the bearish call with a comment from a former U.S. leader in a report that was issued, appropriately enough, on Presidents' Day. Prices tumbled.

Gold will slump back to $1,100 an ounce in three months and $1,000 an ounce in 12 months, analysts including Jeffrey Currie and Max Layton wrote in the report that was dated Feb. 15 and received on Tuesday. It was headlined with a remark from former President Franklin D. Roosevelt.

There's "nothing to fear but fear itself," the analysts entitled the seven-page note, channeling comments from Roosevelt's 1933 inauguration when the U.S. economy was being ravaged by the Great Depression. "It's time to sell the fear barometer," the bank said, and recommended shorting gold.

Gold jumped to highest since February 2015 last week as sinking equity markets, weaker oil prices, and diminished bets for higher U.S. borrowing costs spurred haven demand. Prices were further boosted by the spread of negative interest rates and concerns about a crisis in Europe's banks. Goldman said it still expected rates to rise, putting the odds of U.S. recession at just 15 to 20 percent, and rejected the notion that a re-run of the crisis was likely.

'Not Justified'

"We believe that these new fears, like past fears, are not justified," the analysts wrote, saying that financial markets had overreacted. "Systemic risks stemming from the collapse in oil and commodity prices are extremely small."

Gold for immediate delivery sank as much as 1.5 percent to $1,191.02 an ounce and traded at $1,193.52 at 1:09 p.m. in Singapore. It's down from $1,263.48 on Feb. 11, the highest price since February 2015. Goldman's targets for bullion are the same as those given by the bank in a note last week, when it said that U.S. rates will still rise.

 

#RioTinto Swings to Annual Loss, slashes Dividend

Rio Tinto swung to an annual loss and scrapped its progressive dividend policy, citing a worsening global economy and a sharp downturn in commodity prices.

Rio Tinto follows major rivals in acting on its dividend to protect profits.

Swiss mining and trading giant Glencore in September scrapped its dividend
and raised US$2.5 billion in a share issue as part of a plan to rein in
net debt. Then, in December, Anglo American said it would suspend
dividend payouts as it outlined plans for a sweeping restructuring that
would include cutting 85,000 jobs—more than half its workforce—and selling mines.

Vale SA more recently said it may too cut its payout, and many analysts project BHP Billiton Ltd. could slash its dividend by as much as half when it reports half-year earnings on Feb. 23.

Still,
Rio Tinto’s about-turn on its dividend policy is a surprise. Mr. Walsh,
who stepped up as chief executive three years ago in the aftermath of
massive write-downs against Rio Tinto’s operations, in 2014 said the
miner’s so-called progressive dividend was a key commitment that he
aimed to maintain.

On Thursday, he defended the scrapping of that policy as a “prudent” move.

“I don’t think anybody predicted what is happening in the world economy today,” he said.

 Read the article online on the @WSJ here here: Rio Tinto Swings to Annual Loss, Alters Dividend Policy

The MasterMetals Blog

@MasterMetals

World #Gold Council: Gold Demand Trends Full Year 2015

Gold demand in the fourth quarter increased 4% year-on-year to a 10-quarter high of 1,117.7t. Full year demand was virtually unchanged, down just a fraction (-14t) to 4,212t. Weakness in the first half of the year was cancelled out by strength in the second half. Fourth quarter growth was driven by central banks (+33t) and investment (+25t), offset by a marginal contraction in jewellery (-6t) and continued declines in technology (-6t). Supply remained constrained: annual mine production increased by the slowest rate since 2008 (+1%) and recycling dropped to multi-year lows. Total supply declined 4% to 4,258t – the lowest since 2009.



Read the full report here: 



Gold Demand Trends Full Year 2015