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Goldman Sachs Warns The Gold Rush Is Over As Markets Calm

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Steve Birr Vice Reporter
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Investor fears of global instability were quelled Tuesday as stocks rebounded and gold plummeted to its lowest level in nearly 12 months, with Goldman Sachs going as far as suggesting investors short the precious metal.

Gold suffered a loss of roughly 2.5 percent, dropping to its lowest level since March of 2015. The Down Jones Industrial Average had a strong showing and rose 222 points. The S&P 500 and Nasdaq also finished well in the green, reflecting the rush out of safe havens back into the markets, reports The Wall Street Journal.

Optimism abounded Tuesday as stocks rallied on news the European Central Bank (ECB) is ready to engage in additional stimulus should the economy need it. The ECB kicked off the global move to negative interest rates last year and was followed by the Bank of Japan this year. The rates were blamed for igniting a selloff in bank shares in early February which devastated Japan’s stock market and sent European and U.S. assets tumbling. (RELATED: US Economy Braces For The Worst After Asian Markets Implode)

Goldman Sachs global head of commodities Jeffrey Currie wrote in a Tuesday analysis that market fears concerning China and energy prices drove the recent turmoil and are largely overblown. Currie referenced the famous Franklin Roosevelt quote that “the only thing we have to fear, is fear itself,” applying that same line of reasoning to current stock fluctuations, reports Business Insider.

“We believe that the sharp rise in gold prices this past week was mostly due to concerns over systemic risks, particularly in the banking sector, given the sharp correlation of gold prices with bank stocks and other measures of systemic credit risks,” read the analysis. “While this is a continuation of a trend established since the beginning of the year that started with systemic concerns over oil and China, we believe that these new fears like the past fears are not justified.”

Currie suggests shorting gold which currently sits at a little over $1,200 an ounce, predicting a drop to $1,100 an ounce in three months and $1,000 an ounce by next year. Currie argues that negative impacts from the historic drop in oil prices have likely run their course and general economic fundamentals in the U.S. are strong, reports International Business Times.

“Banks have ample liquidity to maintain funding against higher capitalization,” the analysis said. “The U.S. is far from recession.”

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