Gold, still in its longest winning streak in at least nine decades, will probably peak in 2013 and keep declining the following year as U.S. growth accelerates, Goldman Sachs Group Inc. said.
Prices will peak in 2013 before declining even as the Federal Reserve expands stimulus, the bank said in an e-mailed report today. Bullion will be at $1,825 an ounce in three months, $1,805 in six months and $1,800 in a year’s time, it said, lowering its three-month forecast from $1,840 and its six-and 12-month outlooks from $1,940. It introduced an average 2014 estimate of $1,750. This year’s average is $1,670.
The metal is headed for a 12th consecutive annual gain as central banks from the U.S. to Europe to China pledged more steps to spur economic growth. Investors are holding a record amount in gold-backed exchange-traded products and nations from Russia to South Korea added to gold reserves this year. Global growth will accelerate to 3.6 percent in 2013, from 3.3 percent this year, the International Monetary Fund estimates.
“In the short term, the combination of more easing and weaker growth should prove supportive to gold,” Jeffrey Currie, an analyst at the bank, wrote in the report. “Medium term, however, the gold outlook is caught between the opposing forces of more Fed easing and a gradual increase in U.S. real rates on better US economic growth. Our expanded modeling suggests that the improving U.S. growth outlook will outweigh further Fed balance sheet expansion and that the cycle in gold prices will likely turn in 2013.”
Gold traded at $1,695.60 by 9:19 a.m. on the Comex in New York, set for an 8.2 percent advance this year. Futures reached a record $1,923.70 in September 2011. The Standard & Poor’s GSCI gauge of 24 commodities added 0.2 percent since the beginning of January and the MSCI All-Country World Index of equities rose 11 percent. Treasuries returned 2.7 percent, a Bank of America Corp. index shows.
Gold rallied 70 percent as the Fed bought $2.3 trillion of debt in two rounds of monetary easing from December 2008 through June 2011. The central bank said Oct. 24 it will maintain $40 billion in monthly purchases of mortgage debt and probably hold interest rates near zero until mid-2015. It has swapped shorter term securities for longer term debt through its $667 billion Operation Twist program that is scheduled to end by year-end.
“We find that gold prices ‘look through’ easing that does not require Fed balance sheet expansion - like Operation Twist - increasing instead on announcements of easing through expansion on the Fed’s balance sheet,” Currie said. “Risks to our growth outlook remain elevated, however, especially given the uncertainty around the fiscal cliff, making calling the peak in gold prices a difficult exercise.”
President Barack Obama is hardening his stance in his first post-election confrontation with Republicans, declaring that he will make no deal on the country’s fiscal future unless congressional leaders first accept tax-rate increases for top earners. If the so-called fiscal cliff of spending cuts and tax increases that will kick in at the beginning of next year isn’t averted, the U.S. may face a recession, according to the Congressional Budget Office.
Without additional easing by the Fed late next year, gold may fall to $1,625 by the end of 2014, Goldman predicts. Under weaker U.S. growth, prices may reach $1,900 by the end of next year, while better growth means bullion may stall near current prices, before falling to $1,500 by the end of 2014, it said.