Goldman Sees Risk of Gold Below $1,000 on U.S. Economy
Gold is poised to extend declines as the U.S. Federal Reserve withdraws stimulus and economic data improve, according to Goldman Sachs Group Inc., which says that there’s a risk that bullion may drop below $1,000 an ounce. Futures retreated in New York.
While debt-ceiling discussions in the U.S. and the Syrian crisis may support bullion in the near term, gold will resume its decline into next year, Jeffrey Currie, head of commodities research, said in an interview on Bloomberg Television today. The bank’s target for 2014 is $1,050, and the commodity may overshoot to the downside, Currie said in Singapore. Gold futures haven’t traded below $1,000 since October 2009.
Bullion has dropped 22 percent this year as some investors lost faith in the metal as a store of value, the U.S. economy improved and stocks and the dollar rallied. The Fed will pare its $85 billion a month bond-buying program next week, according to a Bloomberg survey. Earlier this year, Currie issued a sell recommendation on bullion on April 10, before gold plunged 13 percent in a two-session slump that ended April 15.
“While we agree with the mid-cycle price somewhere around $1,200, we believe that at least near term it can overshoot to the downside, which is why we have $1,050” as a target, Currie said. “It clearly could trade below $1,000.”
Gold for December delivery fell as much as 2 percent to $1,304.60 on the Comex, the lowest since Aug. 9, and traded at $1,314.40 at 11:52 a.m. in New York. Most-active futures reached a record $1,923.70 in September 2011. Goldman’s three- and six-month targets are $1,300, according to a report on Sept. 11.
Global stocks tracked by the MSCI All-Country World Index rallied 12 percent this year and the Bloomberg U.S. Dollar Index climbed 3.9 percent. The Fed began buying $40 billion of mortgage-backed securities per month in September of last year and then supplemented that with $45 billion of Treasury securities in December to bolster the recovery. Fed Chairman Ben S. Bernanke suggested on June 19 that the program might be wound up by the middle of next year.
“For next year, a move to $1,000 is on the cards,” said Dominic Schnider, head of commodities research at UBS AG’s wealth-management unit in Singapore. “Once a timetable of tapering is known, then you probably will see a fresh selling wave of the exchange-traded fund side.”
Most of the Fed’s expected decision next week to start tapering has been priced in, and Goldman expects an initial reduction of $10 billion a month in asset purchases, said Currie. A stronger dollar would diminish gold demand, he said.
Investors have sold bullion at a record pace from exchange-traded products this year. Holdings in ETPs have contracted 684.1 metric tons to 1,947.8 tons after shrinking every month in 2013, according to data compiled by Bloomberg.
Credit Suisse Group AG raised the possibility of gold trading below $1,000 in May as Ric Deverell, head of commodities research at the bank, said then that bullion was going to get crushed as inflation risks remained muted. That forecast was for bullion in five years’ time.
“The real key in gold is to see the evidence of the improving economic data in the U.S.,” said Currie, who is based in New York. Weakening emerging-market currencies, especially the South African rand, will also help to reduce the cost of production in dollars, he said
The Institute for Supply Management’s factory index showed U.S. manufacturing expanded in August at the fastest pace since June 2011. The group’s gauge of service industries, which cover almost 90 percent of the economy, posted the highest reading since December 2005, according to data compiled by Bloomberg.
Gold has fallen this year because investors see less need for disaster insurance, Bernanke said in July. One reason that prices are lower is that people are less concerned about extreme outcomes, particularly negative, he said.
The U.S. federal government needs to increase its debt limit later this year, and Goldman expects that the ceiling will be raised by the end of next month, according to the Sept. 11 report. On Syria, U.S. Secretary of State John Kerry met with Russian Foreign Minister Sergei Lavrov this week to seek to get Syria to give up its chemical weapons.
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