Gold and Silver Edge Lower, Goldman Remains Bullish

On Monday, gold futures for December delivery slipped $9.70 to settle at $1,778.40 per ounce, while silver futures fell 66 cents to settle at $34.02.

Investor Insights: Here’s Why Goldman Sachs is Staying Long Gold.

German Chancellor Angela Merkel has called for a “new Europe” by creating closer political ties and tighter budget rules in the 27-nation European Union.  Speaking to her Christian Democratic Union party’s annual congress today, Merkel advocated a tighter fiscal union, though she stopped short of proposing jointly-sold euro bonds, an idea arising out of the sovereign debt crisis that Germany has repeatedly rejected.  Now that leadership changes in Italy and Greece are underway and both countries are moving forward with critical austerity measures, Merkel has turned her attention to re-shaping the euro and the future of the European Union in order to shore up the region’s finances and prevent a future crisis.

The US dollar (NYSE:UUP) climbed higher as gold and silver miners declined.  Barrick Gold (NYSE:ABX) declined more than 2%, while AngloGold (NYSE:AU) fell 4% in afternoon trading.  First Majestic Silver (NYSE:AG) declined 3.5%, and Pan American Silver (NASDAQ:PAAS) decreased by 4%.

On Monday, banking giant Goldman Sachs (NYSE:GS) announced it is staying long gold.  Due to low real interest rates, slower US economic growth, and rising debt, the bank has also raised its gold forecast for 2012.  The report by Goldman states, “We expect gold prices to continue to climb in 2011 given the current low level of US real interest rates.  Further, with our US economics team now forecasting slower US economic growth in 2011 and 2012, we expect US real interest rates to remain lower for longer, supporting higher gold prices through 2012.”  The bank also said that the ongoing debt crisis in the euro zone is “skewing the balance of risks to higher gold prices.”  Ben Bernanke has already pledged to keep interest rates at all-time lows for at least mid-2013.  Furthermore, the Federal Reserve recently slashed its economic growth projections for 2012.  Fed officials now expect the US economy to grow by 2.5%-2.9% next year, down from previous projections of 3.3%-3.7% made in June.

The report also gives a short-term price forecast.  For gold, the bank increased its three-month forecast by 7.0% to $1,760 a troy ounce from $1,645/oz, its six-month forecast by 5.8% to $1,830/oz from $1,730/oz, and its 12-month forecast by 3.8% to $1,930/oz from $1,860/oz.

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