Goldman Sachs Group Inc.’s Jeffrey Currie got ahead of gold’s biggest collapse since 1980 last week because he saw two signals most others missed.
Prices that had risen for 12 straight years as investors sought a haven asset failed to rally amid economic turmoil in Cyprus. Gold holdings in exchange-traded funds tumbled at a time when interest rates remained low.
Currie, the bank’s 46-year-old global commodities research head with a Ph.D in economics from the University of Chicago, issued his sell recommendation April 10, before gold plunged 13 percent in a two-session plunge that ended April 15, the biggest decline in 33 years. Morgan Stanley and Bank of America Corp. followed Goldman, and the slump wiped out almost $1 billion of hedge fund manager John Paulson’s personal wealth.
“You had a whole group of observations that should have created a substantial rally in gold prices, but they didn’t,” Currie said by telephone yesterday from New York. “The fact that gold did not rally on Cyprus amid the bad U.S. data that occurred in that time period created the conviction we needed.”
Investors are dumping gold funds at the fastest pace in two years, researcher EPFR Global said April 16, compounding a slump that has wiped $560 billion from the value of the central bank reserves. The bear market ended the appeal of a precious metal that soared to a record $1,923.70 an ounce in 2011 on demand for a hedge against Europe’s debt crisis and inflation spurred by government stimulus.
Yesterday gold closed at $1,382.70, down 17 percent this year, as inflation concerns recede amid signs of a global economic slowdown.
Cyprus Levy
Gold rose 1 percent in the week after March 16 when Cyprus announced an unprecedented levy on bank deposits, before erasing gains the following two weeks. The country’s finance minister said April 14 it may sell gold reserves to get international aid, helping extend a slump this week after the metal fell into a bear market April 12. Bullion capped a record annual run last year as nations pledged more stimulus to bolster economic growth.
Currie, who manages a team of 11 research analysts, first cut the bank’s outlook for gold prices in December, and then again in February, before recommending a short position on April 10. The bank’s 12-month forecast is for prices to reach $1,390 an ounce. The target for the end of 2014 is $1,270 and prices may drop below $1,200 temporarily, he said.
The International Monetary Fund April 16 cut its forecast for world economic growth from 3.5 percent to 3.3 percent, as central banks from the Federal Reserve to the Bank of Japan continued buying government bonds in programs known as quantitative easing that have pumped more than $5 trillion into the global financial system since 2008.