Gold will drop in each of the next four quarters and reach a four-year low as reduced U.S. stimulus in response to faster economic growth curbs demand for bullion as a haven, the most accurate forecasters said.
The metal will decline to an average of $1,175 an ounce in the third quarter next year, or 11 percent less than now, according to the median of estimates from the 10 most-accurate precious metals analysts tracked by Bloomberg over the past two years. Prices were last at that level in 2010.
The forecasts underscore how some investors lost faith in gold as a store of value, driving prices to their first annual loss in 13 years. More than $63 billion was erased from the value of gold-backed funds this year, spurring losses for billionaire hedge-fund manager John Paulson, and mining companies announced at least $26 billion of writedowns. Bullion jumped today after Dagong Global Credit Rating Co. cut its U.S. credit rating and on speculation the Federal Reserve will postpone slowing stimulus.
“Desire to buy gold as a hedge against the consequences of monetary policy has diminished,” said Tom Kendall, an analyst at Credit Suisse Group AG in London whose precious-metals forecasts were the second most-accurate over the past two years. “When you’ve got other asset classes, equities in particular, doing so well, then it’s hard to divert investments out of them and into something like gold, which is falling.”
The metal slid 22 percent to $1,314.85 in London this year after tumbling into a bear market in April. It’s now 32 percent below the record $1,921.15 set in September 2011. The Standard & Poor’s GSCI gauge of 24 commodities fell 1.4 percent since the start of January, the MSCI All-Country World Index of equities advanced 15 percent and the Bloomberg U.S. Treasury Bond Index lost 2.5 percent.
Gold retreated this month even during the U.S. government shutdown, which began Oct. 1. As U.S. lawmakers last week debated extending an Oct. 17 deadline on the government’s borrowing authority, bullion still fell the most in a month, reflecting weakening demand for the metal as a hedge against financial turmoil. Congress voted yesterday to end the impasse, with bullion losing as much as 0.2 percent.
While the Federal Reserve refrained from trimming stimulus in September, most policy makers said the central bank was likely to taper this year, according to minutes of the meeting released Oct. 9. U.S. economic growth will accelerate to 2.6 percent in 2014, from 1.6 percent this year, according to the mean of 90 economist estimates compiled by Bloomberg.
Bullion will average $1,250 this quarter, dropping to $1,225 in the first three months of 2014 and $1,195 in the following period, the Bloomberg survey showed. The most-accurate list includes the top five overall forecasters of precious metals, and the remaining five are made up of the best analysts for gold, silver, platinum and palladium individually.
Jeffrey Currie, Goldman Sachs Group Inc.’s head of commodities research who correctly forecast this year’s rout, said Oct. 8 that gold is a “slam dunk” sell for next year because the U.S. economy will strengthen after lawmakers resolve the stalemates over the budget and debt ceiling. Goldman expects prices to be at $1,050 at the end of 2014.
Gold rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system, increasing concern about currency debasement and inflation. Consumer-price gains averaged 2.2 percent the past two years, compared with a 10-year average of 2.4 percent. The S&P 500 index is trading 0.5 percent below the record set Sept. 19.
There are still risks the global recovery will be weaker than expected, with the International Monetary Fund cutting its 2014 growth outlook on Oct. 8 to 3.6 percent from 3.8 percent. China will expand 7.4 percent next year, the least since 1990, and the 17-nation euro area will grow 1 percent after contracting since the start of 2012, according to economist estimates compiled by Bloomberg.
Demand for physical gold may also curb the decline in prices anticipated in the Bloomberg survey. The metal jumped as much as 21 percent in two months after reaching a 34-month low of $1,180.50 on June 28 as Asian demand for jewelry, bars and coins surged. Global sales of bullion bars and coins gained 78 percent to a record in the second quarter, according to the London-based World Gold Council.
“If we saw any big downside moves then you would get a surge in Chinese buying,” said David Wilson, an analyst at Citigroup Inc. in London. “People are buying gold not just for investment. The jewelry market is growing rapidly and I suspect people will bargain hunt.”
Consumer purchases will reach as much as 1,000 tons in India and China this year, the World Gold Council says. That would exceed China’s record of 778.6 tons in 2011 and approach India’s all-time high of 1,006.5 tons in 2010.
The flow of metal from west to east led Australia & New Zealand Banking Group Ltd., Deutsche Bank AG and UBS AG to open vaults in Asia this year. Central banks also are storing more metal, adding 535 tons to reserves last year, the most since 1964. They may buy another 350 tons in 2013, the World Gold Council predicts.
That’s being offset by the sale of bullion from exchange-traded products, with investors selling 731 tons valued at $30 billion this year, data compiled by Bloomberg show. ETP assets reached 1,900.8 tons yesterday, the lowest since May 2010. Paulson, the biggest investor in the SPDR Gold Trust, the largest gold ETP, cut his stake in the product by 53 percent in the second quarter, a government filing showed.
Barrick Gold Corp. (ABX), the biggest producer, said Aug. 1 it may sell, close or curb output at 12 mines from Peru to Papua New Guinea. The Toronto-based miner announced $8.7 billion of writedowns in the second quarter and cut its dividend by 75 percent after prices plunged. Its shares fell 50 percent in New York trading this year.
The rout in gold may spur mining companies to resume selling future output to lock in returns, reversing a decade-long trend that added demand as producers closed out positions. Hedging will rise to 35 tons in 2014 from 20 tons this year, Barclays Plc predicts.
The industry will “slowly return” to forward sales, Charles Carter, an executive vice president at AngloGold Ashanti Ltd., said at a conference in Rome on Sept. 30. The Johannesburg-based company is the third-biggest producer.
“A lot of gold has been held for speculative purposes, investment and a store of value, and that’s less of a reason going forward,” said Robin Bhar, an analyst at Societe Generale SA in London and the most accurate precious-metals forecaster over the past two years. “If you sell your gold and put your money into equities, other fixed-income assets or real estate, you’re going to show a return. The gold bull market is definitely over.”
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