Goldman Targets Gold Price To Hit $1,480.00 In Next 3 Months

By: Elizabeth Kraus

Henry Ford once said, “It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

While the U.S. and European governments have imposed sanctions and frozen Libyan assets worth billions of dollars, including the central bank, sovereign wealth fund and state oil company, as it turns out, the “long war” threat from Gaddafi may not be such empty words as some might think. The Financial Times on March 21 cited data from the International Monetary Fund (IMF) that the Libya holds 143.8 tonnes of gold, but some say the actual amount could be several tonnes higher. If Gaddafi somehow finds his way to cash in on this pot of gold and make good on his “long war” threat, buying guns, war planes and mercenaries to fight for him, it would only further gold’s upward cause. On some such news, Goldman Sachs had put in a fresh gold price target of $1,480 within three months.To add to that, AngloGold Ashanti, the world’s third-largest producer, also told Reuters on Tuesday, GOLD prices could reach $1,600 an ounce by the end of next year. “We think the direction for gold looks like it could continue to be quite strong on the upside,” Mark Cutifani, CEO of AngloGold Ashanti said at the Reuters Global Mining and Steel Summit. “You could say we should breach $1,500 next year and we use (an increase of) about $100 an ounce a year on the supply side to give a sense of where the market goes over the long term,” he said. “Basically I’m saying towards the end of next year, we should hit $1,600 based on those numbers.” Spot gold was trading at $1,429.85 an ounce during early trade on Tuesday, compared with $1,425.05 late in New York on Monday.

While the first quarter of the new year has been a tumultuous one, marked by geopolitical unrest in North Africa and the Middle East, major natural disasters in New Zealand and Japan, and most recently the civil war in Libya, and of course ongoing economic turmoil throughout much of the industrialized world–it has resulted in rather extreme market volatility amid fits of risk aversion–associated with broad-based uncertainty about the likely impact of recent events. Our hearts go out to the people of the world who are suffering right now; be it due to political repression, natural disaster or economic hardship in this increasingly interconnected world, but it’s also important to remember, that events on the other side of the world, indeed have a significant impact on our lives.

Faced with the harsh reality that global markets have no sympathy, savers and investors the world over need to make decisions that will protect interests and wealth. But as we contemplate the best steps to take do that, we may be feeling overwhelmed by all the information and conflicting reports so readily at our fingertips. Sometimes it’s best to step back, take a deep breath and realize that frequently, the most obvious answer is the right answer.

Monetary officials in the United States are undoubtedly playing the same “what if and how” game we are…Do events in Japan threaten to trod on the latest “green shoots” of a U.S. recovery? If Japanese investors do in fact start repatriating their capital en masse, what are the implications for the U.S. Treasury market? With Treasury holdings of $885.9 billion, Japan remains the second largest foreign holder of U.S. debt. If it reduces participation in bond auctions, or worse yet starts selling bonds to raise funds for rebuilding, the Treasury Department is going to potentially have both supply and demand problems that will put upward pressure on rates. The pricing of this risk has likely contributed to the rise in the yen and added further weight to the dollar. It is likely that only the Fed would step-in to fill the demand void and absorb any excess supply if Japan were to turn inward. In recent months, the Fed has already surpassed both Japan and China to become the largest holder of our debt. Speculation that the Fed will extend its quantitative easing campaign beyond the scheduled end of QE2 in June has escalated in light of the recent events in the Middle East and Japan.

So, when those dollars blimp on our computer screen, we will also experience, just how fast and extremely easy for the Federal Reserve to create money out of thin air that will impact our lives with inflation. Then, what happens to the dollar? Regal Assets president Ron Fricke stated over the weekend “We are already in such a mess that the only way to have a real impact on the money supply is to increase interest rates so that people pay back their loans and borrow less money from the banks, which decreases the amount of money in circulation.” However, higher interest rates might very well crash the economy. So the Fed’s current “solution” to overcoming inflation is… creating even more inflation. Fiat money is a dangerous addiction. Even if the Fed found a way to stop inflation, as long as the current system persists the temptation will always be there to resume pushing the easy money button. That’s why we need to “get back on the gold standard” says World Bank Chief Robert Zoellick, and eliminate the Federal Reserve altogether, not letting them playing God with the economy. “The first step towards monetary freedom is to allow open competition in currencies,” according to Ron Paul. “Once gold and silver are allowed as legal tender and can be sold without sales tax, everyone can use them to store their wealth and to pay for the things they want to buy.”

If money was backed by gold and silver, people couldn’t just sit in some fancy building and push a button to create new money. They would have to engage in honest trade with another party that already has some gold in their possession. One thing we do know from history is that higher energy prices do not bode well for the U.S. economy. In our still-weakened state in the wake of the financial crisis we are especially susceptible: encumbered by huge deficits, high unemployment, a moribund housing market, budget battles, a looming fight over the $14.294 trillion debt ceiling, and the potential for a government shut-down. An oil shock on top of all that just might be the proverbial straw that breaks the camel’s back. So, faced with rising price risks and interest rates already at zero, like the BoJ (Bank of Japan), the Fed’s options are limited. And the onus is indeed on the Fed as our Representatives in Washington squabble over tens of billions of dollars when we have a multi-trillion dollar problem on our hands.

Even the chairman of the Joint Chiefs of Staff, Admiral Michael Mullen has weighed in, calling the growing national deficit the “biggest threat to our national security.” Where to turn? Historically, in times of uncertainty and turmoil, investors have moved out of risky assets into “safe-havens” like cash, government bonds and of course gold. Arguably some of the traditional safe-havens of the past — most notably U.S. Treasuries and the dollar — have been severely diluted due to the proliferation of supplies. If we look at the price action of the dollar index as the Middle East and North Africa became embroiled in unrest, then note the absence of a dollar bid following the Japanese earthquake and tsunami. It would seem that the greenback has lost its safe-haven status entirely, as it hurdles relentlessly toward losing its status as the global reserve currency as well. The long-term downtrend in the dollar appears poised to re-exert itself in the face of a myriad of risks, both foreign and domestic.

But meanwhile gold has held up remarkably well, save for an initial bout of deleveraging — primarily associated with the selling of paper representations of gold — which moved the yellow metal a mere 4% off its recently established all-time high. In a deleveraging event, it is generally physical buying that establishes support. Gold’s safe-haven status is intact and the underlying trend is further supported by gold’s well-established roles both as an alternative currency and the traditional hedge against inflation. Demand for physical gold so far this year has been described as “explosive” and “voracious”. There is little to indicate the quest for appropriate adjectives will end anytime soon, and in fact recent global events may spur even more robust global demand in an environment of tightening supply.

So, if 68 year old Libyan leader Muammer Gaddafi is sitting on 143.8 tonnes $6.4 billion pot of gold—enough to pay mercenaries to fight for him for years…he might not end up like ousted Egyptian dictator Hosni Mubarak, who reportedly fled after he used the 18 days of protests against his rule to move his fortune – estimated at up to $64 billion – to untraceable accounts in Western countries. “If a country like Libya wants to make their gold liquid, it would probably be in the form of a swap – whether for arms, food, buying mercenaries, or cash,” Walter de Wet, the head of commodities research at Standard Bank, told the Times. Regardless, the price of gold is rising, and “if the dollar continues to remain weak and we get further unrest in the Middle East, continued war in Libya, there is a very reasonable chance for gold to test the record high,” Darren Heathcote, head of trading at Investec Australia, told Reuters.

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