Gold Rises From Lowest Close Since 2010 as Goldman Sees LossesJoe Richter
Gold rebounded from the lowest close in three years that was spurred by the Federal Reserve’s decision to taper stimulus. Goldman Sachs Group Inc. said bullion’s decline isn’t over as it heads for the biggest annual drop since 1981.
Futures for delivery in February gained 0.8 percent to settle at $1,203.70 an ounce at 1:40 p.m. on Comex in New York. The Bloomberg U.S. Dollar Index, a gauge against 10 currencies, fell for the first time in four days, snapping the longest rally in almost seven weeks. Prices rose today after some traders unwound bets on a decline, said Fain Shaffer, the president of Infinity Trading Corp. in Indianapolis.
Bullion fell 3.4 percent yesterday to $1,193.60, the lowest settlement since Aug. 3, 2010. Prices will drop to $1,050 by the end of 2014, Goldman Sachs said. Gold is heading for the first annual decline since 2000 after investors lost their faith in precious metals as a store of value. The Fed said on Dec. 18 it will cut monthly asset purchases, known as quantitative easing, to $75 billion from $85 billion.
“Gold is now likely to grind lower throughout 2014,” Jeffrey Currie, Goldman’s head of commodities research in New York, said in a telephone interview. “Much of the expected price decline has been priced in as opposed to a more gentle process as the Fed backs away from QE. When the gold market sees these events, it usually tries to price it in immediately.”
Gold for immediate delivery climbed 1.2 percent to $1,203.43 an ounce after falling 2.5 percent yesterday.
“You may have some position-squaring and short-covering coming into the end of the year, but overall I expect to see continued weakness in gold,” Infinity’s Shaffer said. “There’s no reason to buy right now. You could be seeing a little bit of bargain hunting at these levels. But no one wants to catch a falling knife, and that’s what gold is right now.” Exchange-traded products backed by bullion lost about $73 billion in value this year, and mining companies wrote down at least $26 billion.
Bullion reached an intraday, 34-month low of $1,179.40 on June 28, less than two weeks after Fed Chairman Ben S. Bernanke concluded a policy meeting by saying bond buying would slow this year and he’d end the program in 2014. Gold rebounded in the next two months partly as the Fed chief said tapering will depend on economic performance, including during testimony to Congress on July 17.
The central bank’s decision this week means traders who were still holding out for a rally are now “throwing in the towel,” Frank Lesh, a trader at FuturePath Trading LLC in Chicago, said in a telephone interview.
Billionaire John Paulson, the largest holder in the SPDR Gold Trust, the biggest ETP, said on Nov. 20 that he personally wouldn’t invest more money into his gold fund because it’s not clear when inflation will quicken. Billionaires George Soros and Daniel Loeb sold their entire investments in the SPDR Gold Trust in the second quarter.
“Money always goes where it’s well treated,” Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion, said in an interview. “If you were doing well in equities, you didn’t need to be in gold. As long as the economic data continues to gain traction, we should see the dollar rise and the Fed continue to taper. That’s typically negative for gold.”
Gold slumped into a bear market in April and has tumbled 28 percent this year. Some investors sold the metal amid low U.S. inflation and as equities rallied.
“The region below $1,200 is where buying may be seen, especially from the jewelry sector and other industrial users,” said David Lennox, an analyst at Fat Prophets in Sydney. “There’s still a potential for gold to go lower as the market expects further curbs on the QE.”
Fed officials raised their assessment of the employment outlook, predicting the jobless rate will fall as low as 6.3 percent by the end of next year, compared with a September forecast of 6.4 percent to 6.8 percent.
Policy makers may hold interest rates close to zero percent even if unemployment falls below the 6.5 percent rate the central bank had cited as a catalyst for an increase, “especially if projected inflation continues to run below” the 2 percent goal, the Fed said a statement.
U.S. gross domestic product climbed at a 4.1 percent annualized rate in the third quarter, the strongest since the final three months of 2011 and up from a previous estimate of 3.6 percent, government figures showed today.
Gold rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system. Futures have plunged 38 percent from a record $1,923.70 in September 2011.
Hedge funds and other speculators raised their net-long position in Comex gold by 25 percent to 33,449 futures and option contracts in the week ended Dec. 10, government data showed on Dec. 13. Short bets, which slid 6.7 percent to 74,312, are within about 7 percent of the record in July.
Gold will probably reach a bottom by April as the Fed “does whatever it takes” to reach its inflation target, Michael Pento, the president of Pento Portfolio Strategies in Colts Neck, New Jersey, said in a telephone interview.
Global equities have advanced to the highest in almost six years, and U.S. inflation is running at 1.2 percent, almost half the rate of the past decade. Gold ETP holdings slumped 32 percent this year, headed for the first drop since the products started trading in 2003.
Silver futures for March delivery rose 1.4 percent to $19.453 an ounce.
On the New York Mercantile Exchange, palladium futures for March delivery were 0.4 percent higher at $698.75 an ounce. Platinum futures for April delivery gained 1 percent to $1,333.70 an ounce.