Goldman Sachs Supports Higher Gold & Oil to 2011-2012 (GLD, IAU, SGOL, DGP, GDX, GDXJ, OIH, USO, DIG)

Goldman Sachs periodically updates its outlook on sectors and the economy with a one to two-year horizon.  Yesterday’s upgrade of economic output in 2011 is accompanied by some interesting aspects for commodities such as gold and oil this morning.  The new targets offer much support for all aspects of the gold and oil trade to continue.  We’ll specifically be watching gold ETFs of SPDR Gold Shares (NYSE: GLD), iShares Gold Trust (NYSE: IAU), ETFS Physical Swiss Gold Shares (NYSE: SGOL), the PowerShares DB Gold Double Long ETN (NYSE: DGP), Market Vectors Gold Miners ETF (NYSE: GDX), and Market Vectors Junior Gold Miners ETF ((NYSE: GDXJ).  Our key ETF instruments for oil are Oil Services HOLDRs (NYSE: OIH), the United States Oil (NYSE: USO), and the leveraged ProShares Ultra Oil & Gas (NYSE: DIG).

For starters, the GDP forecast from Jan Hatzius raised expected 2011 GDP to 2.7% growth from about 2.0% growth. More importantly, it lifted its 2012 target to 3.6% growth for the year.  The firm noted that this is a shift in the growth outlook that had been in place for about 5 years.

The forecast for gold by Goldman Sachs noted a level of $1,690.00 per ounce as the next target for 2011 and peaking at $1,750.00 per ounce.  On oil, Goldman Sachs sees an average oil price of $100 per barrel in 2011 and it sees an average price of $110 per barrel in 2012.

As far as how this compares to gold and oil, oil this morning is $1,389.20 per ounce (down less than 0.2%) and NYMEX Crude Oil is trading at $86.33 (down almost 0.5%).   Calculating the implied price for the SPDR gold ETF would be $167 to $168 in 2011 and about $172 to $174 in 2012.

The US Oil ETF (USO) is harder to calculate because it has erosion and roll dates to account for.  If we were forced to imply some forward prices on the USO based upon GoldmaN Sachs’ new targets, that would come to a range of $41 to $42 in 2011 and $45 to $48 in 2012.

Again, those are subjective targets on both gold and oil and the tracking price often falls out of line in fast markets on both fund products.  Calculating the prices for ETF and ETN products like OIH, DIG, GDX, DGP, and others is very difficult because of the equity components and relative assumptions that have to be included.  In theory, those prices should all be higher than today as well if Goldman Sachs is accurate on these higher forecasts for GDP, oil, and gold.

Keep in mind that this is just one firm’s forecast, even if it is the might Goldman Sachs.  Many economists and many industry insiders have different objectives.  Some are higher, some are lower.

So far the GLD is up only marginally at $135.60 and teh USO is down about 0.5% at $37.05.

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JON C. OGG