Goldman beats up on gold

Goldman Sachs has readjusted their 3-, 6-, and 12-month gold price forecasts from $1,825/toz, $1,805/toz and $1,800/toz to $1,615/toz, $1,600/toz and $1,550/toz.

On a day when the gold market shone, a Goldman note to clients highlighted two tailwinds that are problematic for those holding gold: rising real interest rates and ETF dumpings.

Now that real rates have begun to normalize, Goldman analysts Damien Courvalin and Jeffrey Currie believe that gold's bull ride is over.

And the pair had this to say about ETF's in today's note:

We believe that this latest move in gold prices has exposed an important shift in gold positioning at the ETF level. Specifically, the latest collapse in gold ETF holdings stands in sharp contrast to our assumption that ETF positions were likely driven by longer-term allocation rather than short-term trading. Instead, ETF holdings are increasingly exhibiting a strong inverse correlation to real rates, a pattern that we now expect will continue going forward. This is an important shift to our assumptions, as a continued decline in ETF holdings driven by rising real rates precipitates and accelerates the decline in gold prices that we had expected later this year.

These tailwinds combined could amount, in the words of the analysts, to a "fall in prices…faster and larger than we expect as net long positions across COMEX futures and ETFs remain near their record highs."

A fresh burst of headwinds from Europe may yet complicate gold's outlook further as Italy, the euro zone's third largest economy, seems headed for political gridlock. Economist Nouriel Roubini ("Dr. Doom") tweeted today that there is no euro zone crisis exit in his 2013 forecast.