Goldman No Believer in Gold Rally as Fed to Hike Three Times

JPMorgan: Gold Rally Breaks the Bullion Downtrend
  • Bullion forecast to decline to $1,000 by year-end, bank says
  • U.S. economy seen growing above-trend in 2016, Goldman says

Goldman Sachs Group Inc. is no believer in gold’s rally, predicting losses over the coming year as the Federal Reserve increases U.S. interest rates no fewer than three times. Futures dropped.

“Our economics team forecasts that the Fed will raise rates by 25 basis points three times this calendar year, to 1.3 percent,” analysts including Jeffrey Currie and Max Layton wrote in a report received on Tuesday, forecasting that bullion will trade at $1,000 an ounce by the end of 2016.

Gold has surged in the opening weeks of 2016, gaining to the highest level since June and topping $1,200 on Monday, as sinking equity markets and rising concern about the global economy fanned haven demand. The U.S. economy will still grow above-trend this year, boosting inflation expectations, according to the Goldman report. Higher rates curb bullion’s appeal as the metal doesn’t pay interest like other assets such as bonds.

The faster growth, as well as the expectations for consumer-price gains, are “forecast to result in an increase in U.S. real interest rates, which under our gold framework is set to drive gold prices down to about $1,000 by year-end,” the analysts wrote.

Gold futures surged to $1,201.40 an ounce on the Comex in New York on Monday -- the day that the Goldman report was issued. That’s the highest price since June 19. The most-active contract traded 0.8 percent lower at $1,188.70 at 3:50 p.m. in Singapore, 12 percent higher this year.

Goldman’s Outlook

Goldman forecast that bullion will be at $1,100 in three months, $1,050 in six months and $1,000 in 12 months. The bank said a delay to higher U.S. borrowing costs was an upside risk to its forecasts, while China and Russia cutting bullion purchases would be a downside risk.

Investors have scaled back expectations for U.S. rate rises this year as global equity markets have sunk, oil extended losses and China’s economy slowed. There’s now no chance of an increase next month, down from the 51 percent odds seen at the start of the year, according to data tracked by Bloomberg.

Goldman’s outlook for bullion at $1,000 an ounce in 12 months’ time tallies with the projection for that time frame given in the bank’s report on Dec. 21, when analysts maintained their bearish view.

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