SocGen Bearish on Gold Sees Commodity Super Cycle Persisting
Gold will probably extend its decline through 2014, even as the commodity super cycle that’s brought longer-than-average rising prices may persist for a further two decades, according to Societe Generale SA.
Bullion may average $1,150 an ounce next year, said the head of commodities research, Michael Haigh, who in April correctly predicted the metal’s rout. That would be the lowest annual average since 2009, data compiled by Bloomberg show.
Gold is heading for its first yearly loss since 2000 as some investors lost faith in the metal as a store of value after the U.S. Federal Reserve said it may slow asset purchases this year if the economy continues to improve. While Societe Generale is bearish on bullion, it expects the decade-long bull market in commodities to extend for a further 15 to 20 years, driven by rapid urbanization and growing population in countries including China and India, said Haigh.
“It would take something dreadful to happen to make the super cycle suddenly end,” said Haigh, citing risks including a sharp slowdown in China, a scenario the bank doesn’t expect. “If you believe that the third super cycle is a function of population and urbanization, you’re looking at another 15 to 20 years. But it’s not going to be an upward price for all.”
The previous generation-long cycles ran from 1870 to 1913 and from the end of World War II to the early 1970s, Haigh said. The third super cycle began around 2000, he said.
Goldman Sachs Group Inc. and Citigroup Inc. forecast the end of the cycle after prices that more than doubled in 10 years spurred expansions at mines, farms and oil fields. The Standard & Poor’s GSCI Spot Index (SPGSCI) of 24 raw materials lost 2 percent this year, while the MSCI All-Country World Index advanced 5.1 percent. Hedge funds cut combined bullish bets across 18 U.S. commodity futures by 58 percent from a 16-month high in September as gold, metals and grains trade in bear markets.
Gold slid 23 percent last quarter, entering a bear market in April. The precious metal traded at $1,221.65 at 3:06 p.m. in Singapore today and has averaged $1,511 this year.
“Prices are going to generally drop down throughout the year,” Haigh said at a media briefing in Singapore today. Producers may increase hedging, he said. “They’ll start selling into the market, which puts more downward pressure on gold prices.”
Goldman says bullion will reach $1,050 by the end of 2014 and Credit Suisse Group AG anticipates $1,150 in about 12 months. Danske Bank A/S (DANSKE), the most-accurate gold forecaster tracked by Bloomberg over the past two years, predicts $1,000 in three months. Banks from Morgan Stanley to BNP Paribas SA to UBS AG cut their forecasts last month.
Investors sold 622.3 metric tons as of July 5 from exchange-traded products this year, data compiled by Bloomberg show. Haigh uses an algorithm called the Principal Component Analysis model to help him predict prices.
A “hard-landing” in China to end the commodity super cycle would mean growth in gross domestic product decelerating to an annual 3 to 4 percent, he said. That has a probability of just 20 percent, he said.
China’s GDP may have expanded 7.5 percent in the second quarter from a year earlier, according to the median estimate of 31 analysts surveyed by Bloomberg ahead of a July 15 release by the statistics bureau. That would be the slowest pace since the three months through September 2012.
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