Gold will extend losses into 2014 amid expectations the Federal Reserve will pare stimulus as the U.S. recovers, according to Morgan Stanley, adding to bearish calls from Goldman Sachs Group Inc. and Credit Suisse Group AG.
“We recommend staying away from gold at this point in the cycle,” Melbourne-based analyst Joel Crane said in a video report received today. Bullion will average $1,313 an ounce in 2014, down from the $1,420 forecast for this year, Morgan Stanley said in its quarterly metals report on Oct. 7.
Bullion is heading for the sixth weekly loss in seven and investment holdings are shrinking even as U.S. lawmakers wrangle over the debt ceiling and budget, seeking to avert a default and end a government shutdown. Gold is a “slam dunk” sell for next year because the U.S. will extend the recovery after lawmakers resolve the stalemate, Jeffrey Currie, Goldman’s head of commodities research, said this week. The political deadlock in Washington is a “farce,” according to Marex Spectron Group.
“Our forecast profile heading into next year is relatively flat against our expectations of rising real interest rates and the U.S. dollar,” Crane said in the video. Bullion will average lower every year through 2018, Morgan Stanley forecasts.
Bullion, which has averaged $1,453 in 2013, is heading for the first annual loss in 13 years after dropping 22 percent. The price tumbled to a 34-month low of $1,180.50 in London in June on expectations that the Fed would taper the $85-billion-a-month of bond buying. Gold fell 0.6 percent to $1,298.19 at 6:01 p.m. in London, dropping for a third day.
Not everyone is bearish. While gold may look weak fundamentally, “in this sort of environment, you can make a strong argument that gold isn’t too bad a thing to hold,” said Kevin Norrish, head of commodities research at Barclays Plc. “I don’t think it’s a slam dunk short by any means,” he said yesterday. Short bets are wagers on declines.
Most Fed policy makers said that the central bank was likely to taper its bond purchases this year, even as they unexpectedly refrained from such a move in September, according to minutes of their last meeting released yesterday.
Ric Deverell, Currie’s counterpart at Credit Suisse, said on Oct. 8 that selling gold is his top recommendation for trading in raw materials in the next year. Deverell said in May that bullion was going to get “crushed.”
Investors sold 711.8 metric tons from bullion-backed exchange-traded products this year, erasing more than $61 billion from the value of the funds. Holdings fell to 1,920.2 tons on Oct. 8, the least since May 2010, according to data compiled by Bloomberg. Assets are down 27 percent in 2013 after climbing every year since the first product was listed in 2003.
House Republican and Senate Democratic leaders are open to a short-term increase in the debt limit, according to congressional aides of both parties, who spoke on condition of anonymity. President Barack Obama has already said he could accept a short-term deal without policy conditions.
“Tapering has been postponed not canceled, and is expected by year end,” Morgan Stanley analysts wrote in the Oct. 7 report. “We also expect the political stalemate in Washington to be broken before the debt ceiling is breached. Consequently, we see little immediate upside to the gold price either in the immediate future or next year.”
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