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Goldman Sachs Predicts Woes Set to Return to the Gold Space

It’s been a wild ride for gold investors in 2013, and if Jeffrey Currie, head of commodities research at Goldman Sachs, is right, the ride’s not done yet.

Currie said in a Bloomberg interview today that the investment bank’s target for gold is $1,050/oz and that it could very well overshoot this level to the downside.  Spot gold is currently trading just above $1,319/oz.

Tapering, also known as the removal of monetary stimulus appears to be Goldman’s rationale for this call.  As the Fed begins to wind down the printing presses, it will have an impact on the price of gold.  In the very short-term, Currie maintained that concerns over Syria and the debt-ceiling may well add a degree of support to the commodity, but as these items pass, tapering will become top-of-mind.

Bad news

After being trounced during the first half of the year, when the price fell by about $500/oz, gold has had a nice little rebound in the second half.  This has benefitted the gold mining stocks that were also hammered during the first half.

The table below helps provide an indication of the bounce that has occurred in the commodity, and the impact it’s had on gold mining stocks.

12/31/12

6/30/13

8/28/2013

Current

YTD

Gold ($/oz)

$1,693

$1,192

$1,419

$1,319

Performance

 

-29.6%

+19.0%

-7.0%

-22.1%

Barrick Gold (TSX:ABX)

-52.3%

+32.2%

-10.2%

-48.2%

Goldcorp (TSX:G)

-32.6%

+15.8%

-12.0%

-30.8%

Yamana Gold (TSX:YRI)

-41.4%

+19.4%

-10.4%

-38.0%

Kinross (TSX:K)

-44.2%

+11.4%

-8.3%

-45.7%

Source:   http://bit.ly/1ervM2z, Capital IQ

What’s clear from this chart is the beta that gold mining stocks have shown to the price of the commodity during the year.  As gold was plummeting, the gold miners were plummeting more.  As gold lifted, gold mining stocks lifted more.  And so on.  If we were to have a look at the more junior names in this space, this relationship would become even more clear.

The Foolish Bottom Line

Based on how this collection of stocks has performed, if Goldman’s prediction turns out to be correct, the back half of 2013 and into 2014 is going to be a challenging one for those of us who own gold mining stocks.

Because of their weight in the S&P/TSX Composite, this potentially poor performance will hold the entire Canadian market back, just like it did in the first half of the year.  Because of our market’s exposure to resource stocks, investors that own Canadian index funds may be holding more risk than they know.

We have prepared a Special FREE Report that will clue you into the perils of passively investing in the Canadian index and suggests an easy to implement alternative strategy.  The report is called “5 Stocks That Should Replace Your Canadian Index Fund”.  One of these 5 is in the process of being taken over at a huge premium.  You can find out who the remaining 4 are simply by clicking here.

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Fool contributor Iain Butler owns shares in Barrick Gold, Goldcorp, and Yamana Gold.  The Motley Fool doesn’t own shares in any of the companies mentioned.

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