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Should Traders Trust Anything Goldman Says?

Alex Rosenberg
April 10, 2013

Goldman Sachs slashed its gold price forecasts on Wednesday morning, and recommended that people close out the long gold positions Goldman previously recommended and start shorting bullion. While the call did seem to hurt gold in Wednesday's session, many traders kept asking the same question: Why would anyone listen to what Goldman says about commodities?

"Their calls have been suspect at best, so I'm not giving this one much merit," said Jeff Kilburg of KKM Financial. "Traders out here in Chicago are not lending much credibility to their calls, because they've been so inaccurate lately."

Peter Schiff of Euro Pacific Capital goes one further. "Goldman obviously wants to buy more gold, so it needs to convince other to sell it to them," Schiff said. "It also wants to buy low, so it needs sellers to drive down the price."

So do Goldman's commodity calls have any validity—and is there a reason for investors to listen?

"In general, the calls that analysts make on both currencies and commodities tend to be some of the less successful calls that are made," said Princeton Professor of Economics Burton Malkiel. "I have a great deal of suspicion about the usefulness of directional calls."

But Rich Ilczyzyn of iiTrader takes task with Goldman Sachs particularly. "We all know and have seen Goldman reduce or raise forecasts in order to find themselves a better entry or exit point," he wrote in his "Futures Now" blog.

Michael DuVally, a Goldman Sachs spokesman, brushed off such claims. "Our research is independent from other activities of Goldman Sachs," he said.

Still, many cite Goldman Sachs' call on oil in March of 2008. With oil above $100, Goldman said that $150 to $200 was a possibility, and called for an average oil price of $110 in 2009. Instead, oil spend the entirety of 2009 below $82. And some traders say it wasn't just a lousy call; they claim it was a boon to Goldman as it shorted oil all the way up $140.

"They were either wrong on oil," said Anthony Grisanti of GRZ Energy, "or they were trying to goose it up to sell it to people who were bidding it. Certainly, there could be some manipulation going on with these statements."

That said, Grisanti does think that Goldman will end up being on the money with their short gold call, not matter their intentions in making it.

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