“Optimism over the state of the global economic recovery at the start of the year, which drove US real interest rates sharply higher – and gold prices lower – has been tempered by the ongoing events in the Middle East and North Africa (MENA) and Japan, sending the 10-year US TIPS yield down to near 80 bp, setting the stage for the next gold price rally.

We expect gold prices to rally toward our 3-month price target of$1480/t oz, and continue to recommend a long gold trade. While the protests and threat to oil supplies in the Middle East and North Africa drove COMEX gold prices to a new record high of $1437/t oz on March 2, the events in Japan have paradoxically sent gold prices back below $1400/t oz despite the ongoing decline in US 10-year TIPS yields. Given the decline in US real interest rates, we see the recent retracement in gold prices as offering a good buying opportunity, and maintain our long gold trading recommendation as we expect gold to rally to our 3-month price target of $1480/t oz.

We see strong upside to gold prices in the near term, but continue to expect rising US real rates to lead prices to peak in 2012. We expect gold prices to move higher throughout 2011, but continue to believe that gold at current price levels is a compelling trade, not a long-term investment. In particular, we expect that as US real interest rates rise with the recovery in the US economy, gold prices will likely reach a peak in2012.”

Goldman's Jan Hatzius previously named $1690 as a year-end target for gold.