Goldman Sachs Group Inc. cut its forecasts for gold through 2014 after selling quickened as investors priced in expectations of reduced asset purchases by the U.S. Federal Reserve.
The bank cut its target for the end of this year to $1,300 an ounce from $1,435 and lowered its prediction to $1,050 from $1,270 for the end of 2014. Investors are assuming an earlier tapering of quantitative easing and a Fed fund rate increase sooner than the bank’s economists expect, analysts Damien Courvalin and Jeffrey Currie wrote in a report dated yesterday.
Gold has fallen 23 percent this year, heading for the biggest annual drop since 1981, as speculation increased that the Fed would pare monetary stimulus that helped the metal cap a 12-year bull run last year. Prices slumped to the lowest since September 2010 last week after Fed Chairman Ben S. Bernanke said the central bank may slow its bond-buying program if the U.S. economy continues to improve.
“The momentum in gold prices leaves risk to current prices as skewed to the downside,” the analysts wrote. “Medium term, we expect that gold prices will decline further given our U.S. economists’ forecast for improving economic activity and a less accommodative monetary policy stance.”
Gold for August delivery on the Comex in New York slid 0.7 percent to $1,282.60 an ounce as of 1:41 p.m. in Singapore after tumbling to $1,268.70 on June 21, the least expensive since Sept. 16, 2010. Investors sold 533.3 metric tons from bullion-backed exchange-traded products this year, wiping out more than $54 billion from the value of the funds.
Holdings in ETPs declined to 2,098.605 tons on June 21, the least since February 2011, according to data compiled by Bloomberg. Assets are down 20 percent in 2013 after climbing every year since the first product was listed in 2003. Goldman expects ETPs to decline at a steady pace of 1 million ounces a month, “slightly below their recent pace but twice as fast as we had previously expected,” the analysts wrote.
Goldman joins Credit Suisse Group AG and Societe Generale SA in predicting further declines. Prices will drop to an average of $1,200 in the fourth quarter, Societe Generale forecasts. Credit Suisse sees the metal at $1,100 in 12 months, according to Ric Deverell, head of commodities research.
In April, when gold entered a bear market, a buying frenzy from China to India and the U.S. followed the biggest price drop in 30 years, driving prices up more than $150 an ounce. Russia and South Korea were among nations that added gold to reserves this year, after central banks around the world bought 534.6 tons last year, the most since 1964, according to World Gold Council estimates.
“We continue to expect that continued central bank gold buying will not be sufficient to offset this decline in prices,” the analysts wrote. “Further, we would expect this decline in prices to coincide with rising jewelry demand, which we view as price responsive and not price setting.”