Goldman Sachs Says Short Gold And Lowers 2014 Price Target To $1,270

Includes: ABX, AU, GFI, GLD, HMY, NEM
by: George Kesarios

This morning Bloomberg reported that Goldman Sachs (NYSE:GS) lowered its price target (forecast) for gold (GLD), citing that the cycle has turned.

More specifically, Goldman cut its 2013 gold estimate to $1,545 an ounce from $1,610, trimmed its 2014 forecast to $1,350 from $1,490, and set year-end targets of $1,450 in 2013 and $1,270 in 2014.

Goldman recommended starting a short Comex gold position, targeting $1,450 with a stop at $1,650.

Goldman commented:

We believe a sharp rebound in gold prices is unlikely. The fall in prices could end up being faster and larger than our forecast, as aggregate speculative net long positions across Comex futures and gold ETFs remain near record highs.

Goldman also said the turn in the gold price cycle is accelerating after a 12-year rally as the recovery in the U.S. economy gains momentum. Now I am not sure if the U.S. economy is actually gaining, but I do concur that gold will underperform just about every asset under the sun for the immediate future.

Well, I think Goldman has been reading my mind and the gold articles I have written (that was a joke). For those who have followed what I have said about gold and silver, they know I have been a bear on both metals for several months now. In fact one of my forecasts for the year was that 2013 would be the year that gold died (please consider: Will 2013 Be The Year That Gold Dies?).

And when Goldman says the cycle has turned, the easiest way of verifying such a statement is the DOW/GOLD ratio chart.

(Click to enlarge)

As you can see from the chart above, the DOW/GOLD ratio tells us that equities are currently outperforming gold. This is nothing new, in fact as the chart indicates, stocks have outperformed gold in three major cycles over the past 100 years.

But all good things eventually come to an end. As such I agree with Goldman Sachs that gold's era of producing above average returns for investors are over at this time -- until of course such time comes that for whatever reason gold and silver will outperform once again.

On a technical note, the shaded area below is the current support level for gold as I see it. The line below that is the target Goldman has set. I believe that the $1,270 target will be reached way before the end of 2014. In fact, depending on how much damage is done if current resistance levels are taken out, we could even see these levels this year.

(Click to enlarge)

As per my last take on gold (please consider: Why Gold, Silver And Mining Stocks Are Headed Lower), please do not forget that the major gold producers are also not a buy at this time.

Like I said before, if stocks like Barrick Gold (NYSE:ABX), Gold Fields (NYSE:GFI), Newmont Mining (NYSE:NEM), AngloGold Ashanti (NYSE:AU) and Harmony Gold (NYSE:HMY) have not performed over the past decade -- when gold and silver had their biggest rally in history -- why should anyone expect them to perform today? In fact I think at least one of the above companies might even go bankrupt over the next two to three years, depending on how low gold prices settle.

Don't take my word for it, the chart below (monthly scale) says it all. Gold Fields is trading below its 2003 price range. If you don't remember, 2003 was the year that the bull market in gold started.

(Click to enlarge)

And the same goes for the junior producers. Why would anyone want to buy a junior miner, with gold and silver falling, unless they could get this junior miner at a very very very big discount to today's prices?

On a final note, when there are record long speculative positions in Comex gold futures and ETFs as Bloomberg says, and technical support is taken out, do not underestimate the size and scope of the technical selling that might follow.

And if it does, do not try to pick a bottom in gold and silver or gold and silver stocks. At least wait for the carnage to end and for the smoke to clear before deciding to take a dip in the space again. Always remember the market can be wrong longer than you can remain solvent, and that the market has a whole lot more ammunition that you can possibly imagine.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.