GOLD & SILVER SMASHED AGAIN ON CRIMEX OPEN AS GOLD SMASHED BELOW $1700, SILVER BELOW $33
December 4, 2012 by The Doc

Gold back under $1700, and silver under $33 on this morning’s COMEX open.
Silver is down over a dollar to $32.71, and gold was smashed $25 to $1690. It remains increasingly evident just how crucial $1730-$1750 is to gold, as once this level is taken out again to the upside, gold will pop back to its September high of $1800, and through there, will quickly move back to its all-time nominal highs near $1920 placed in August 2011 in the wake of the US downgrade.
With QE4 appearing set for next week, and a further debt downgrade likely in the coming months, gold and silver look poised to explode to the upside.

Silver’s $1 smash actually began just prior to the COMEX open, culminating in a vertical drop precisely on the open:



Gold’s sell-off also began just prior to the COMEX open, and intensified on the open:

Goldman commodity analyst Damien Courvalin is out with a big call: The top in gold is in.

The firm says that the primary driver of gold prices are real interest rates (which have been super-low in the United States, in part thanks to aggressive Fed easing) and that with the economy coming back, this era is coming to an end.

Before you get the details of this specific call, you have to understand the firm's overall view of the economy.

Last Week, Goldman economist Jan Hatzius made a big economic call... that the era of sub-par, post-Financial Crisis growth would come to an end sometime in the second half of 2013. And Courvalin, in lowering his gold outlook, is keying off of this call.

Via Goldman:

Gold prices range bound in 2012 despite perfect set up

Gold prices have remained range bound in 2012, despite a steady decline in US real rates and rise in central bank holdings that would ordinarily be supportive. To understand this dislocation we expand our modeling of gold prices to include the impact of the US Federal Reserve easing. We find that gold prices “look through” easing that does not require Fed balance sheet expansion –like Operation Twist – increasing instead on announcements of easing through expansion on the Fed’s balance sheet.



Improving US growth outlook offsets further Fed easing

Our economists forecast that the US economic recovery will slow early in 2013 before reaccelerating in the second half. They also expect additional expansion of the Fed’s balance sheet. Near term, the combination of more easing and weaker growth should prove supportive to gold prices. Medium term however, the gold outlook is caught between the opposing forces of more Fed easing and a gradual increase in US real rates on better US economic growth. Our expanded modeling suggests that the improving US growth outlook will outweigh further Fed balance sheet expansion and that the cycle in gold prices will likely turn in 2013. Risks to our growth outlook remain elevated however, especially given the uncertainty around the fiscal cliff, making calling the peak in gold prices a difficult exercise.



Gold cycle likely to turn in 2013; lowering gold price forecasts

We lower our 3-, 6- and 12-mo gold price forecasts to $1,825/toz, $1,805/toz and $1,800/toz and introduce a $1,750/toz 2014 forecast. While we see potential for higher gold prices in early 2013, we see growing downside risks. As a result, we find that the risk-reward of holding a long gold position is diminishing and recommend rolling our long Dec-12 COMEX gold position into a long Apr-13 position and selling a $1,850/toz call to finance a $1,575/toz put to protect against a decline in gold prices. Since 2009, this strategy achieved a better Sharpe ratio than a long gold position.