Goldman Trading Desk Sees Surge In Gold Prices Into Year End

While Goldman's traditional, client-facing sell-side research is terminally useless and empirical evidence suggests that doing the opposite of what is recommended yields profitable results more than two thirds of the time, what its trading desk releases to select clients is far more targeted, nuanced, and, in one word, correct. Which is why we were surprised to hear what Goldman's traders had to say about gold. To wit: "We are hearing anecdotes of strong physical demand already coming through in the last few days. Official sector buying is also likely to feature...Although having been rather wrong footed by this recent setback I continue to believe that gold will have a strong end of summer into q4 and that current price moves are creating another great buying opportunity." And unlike the reverse psychology in the research department, the sales guys are much more careful as they have named accounts they get make commission revenue from. Piss these off one too many times and you are cut off. Which makes us believe that Goldman is really long and strong here.

From GS Trading:

Last week gold made an attempt to break above technical resistance of 1550. The momentum failed at 1558 and was followed by a severe correction into the end of the week losing over 60 usd in price. Yesterday we slipped below 1500 to 1491 which I felt certain would not happen as I mentioned in the previous commentary. Correlations with the eur are high and another broad de-risking across commodities amongst a highly unstable macro environment gathered gold in it's wake. This morning we trade 1508.
 
From the franchise flow perspective, we saw sizeable liquidations from the levered community many of which had been building positions ahead of the break (including myself). It's almost certain that CFTC data for the week that ended yesterday and released on Friday will show a sizeable drop in spec length although not yet taking us to the lower ranges. Most recent spec positions were 29m oz. I think it could be at least 3m oz lower. Anything below 20m is considered a much cleaner backdrop. Last summer we also saw painful liquidations in gold as comex length dropped from 30m to 21m oz with prices dropping 100 usd to 1160. This was quickly absorbed by the physical and central bank players which set the stage for the huge rally in September and October before ending the year at 1430.
 
From a technical perspective the thin summer markets could allow for further weakness to test last months support around 1465-70 but I am sure that the physical markets will be absorbing well ahead of these levels. We are hearing anecdotes of strong physical demand already coming through in the last few days. Official sector buying is also likely to feature. A recent survey of central banks suggested that gold purchases would continue to be an important part of their future activity.
 
Although having been rather wrong footed by this recent setback I continue to believe that gold will have a strong end of summer into q4 and that current price moves are creating another great buying opportunity. A significant break of 1460 will probably usher in a new era and author of GS trader commentaries.....