Morgan Stanley to Goldman Cut Gold Forecasts on Fed Outlook
Morgan Stanley lowered its forecasts for gold, joining Goldman Sachs Group Inc. and UBS AG in paring estimates on prospects that the U.S. Federal Reserve will scale back monetary stimulus as the economy recovers.
The bank cut its 2013 target to $1,409 an ounce from $1,487, reduced its prediction for 2014 to $1,313 from $1,563, and trimmed its 2015 estimate to $1,300 from $1,450. Morgan Stanley also lowered its gold and silver forecasts through 2018, analysts Peter Richardson and Joel Crane wrote in a report.
Analysts from BNP Paribas SA to Standard Bank Plc are cutting their outlook for gold as the precious metal heads for its biggest annual drop in more than three decades. Bullion has fallen 24 percent in 2013 after rallying for 12 years, slumping to the lowest level 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.
“With investor demand for safe-haven assets waning against the backdrop of a strengthening U.S. dollar and rising U.S. bond yields, market conditions for gold and silver have become markedly less favorable,” Morgan Stanley analysts wrote.
Gold for immediate delivery fell 0.5 percent to $1,276.09 today after tumbling to $1,269.46 on June 21, the cheapest since Sept. 16, 2010. Investors sold 541.5 metric tons from bullion-backed exchange-traded products this year, erasing $56 billion from the value of the funds.
Holdings in ETPs declined to 2,090.4 tons yesterday, the least since June 2010, according to data compiled by Bloomberg. Assets are down 21 percent in 2013 after climbing every year since the first product was listed in 2003, as waning investor faith turned more serious, said Morgan Stanley.
“This historic and fundamental change in one of the key drivers of the gold bull market is highlighting a sharp decline in the desirability of this form of investment,” Richardson and Crane wrote.
Goldman, which expects ETPs to decline at a steady pace of 1 million ounces a month, cut its 2013 year-end price target to $1,300 from $1,435 and lowered the 2014 prediction to $1,050 from $1,270. 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 June 23 report.
Bernanke said on June 19 that the central bank, which buys $85 billion of Treasury and mortgage debt each month, may begin reducing purchases this year and end the program in 2014. This will keep gold prices under pressure, according to James Steel and Howard Wen at HSBC Securities (USA) Inc., who yesterday reduced their 2013 forecast to $1,396 from $1,542 and trimmed their 2014 estimate to $1,435 from $1,600. Credit Suisse Group Inc. lowered its estimates today.
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