GOLDMAN SACHS: BUY GOLD

TBI ^ | 1-18-2013 | Matthew Boesler

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GOLDMAN SACHS: BUY GOLD

Matthew Boesler
Jan. 18, 2013, 11:53 AM

On Wednesday, Goldman Sachs upped the ante on its call that 2013 will mark the end of a long-running bull market in gold by introducing a new forecast: the bank's commodity strategists see the shiny yellow metal falling to $1200 per ounce by 2018.

However, despite having a bearish 5-year forecast for gold prices, Goldman's 3-month forecast is actually quite bullish. In fact, strategists Damien Courvalin and Alec Phillips write in a note to clients today that they expect gold to reach $1825 per ounce over the next few months – up from current prices around $1690 – as the debt ceiling debate drags on in the United States.

"As a result, with gold prices up only modestly over the past week, we see current prices as being a good entry point to re-establish fresh longs in the gold market before the run up to the debt ceiling debate," Courvalin and Phillips write.

The strategists use a number of charts to illustrate their thesis. The first shows how gold prices ran up in 2011, when Congress faced the same debate about raising the debt ceiling:

However, given a number of global macroeconomic factors adding to uncertainty at the time, Courvalin and Phillips concede that the debt ceiling debate itself did not contribute all $150 to the run-up in prices at the time.

Still, the two point out that there have been six debt ceiling debates in recent memory – and during three of those debates, gold rose 10 percent:

The Goldman strategists write:

There were six instances between 1996 and 2007 when the debt limit was reached and the Treasury resorted to using “extraordinary measures”.

(snip)

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