Gold’s Rally Seen by OCBC’s Gan Heading for ReversalPhoebe Sedgman
Gold’s rally will reverse this half and investors should bet on a second annual drop as global growth gains traction, according to the second-most accurate precious metals price forecaster tracked by Bloomberg.
Bullion will retreat to $1,150 an ounce at the end of 2014 as the U.S. Federal Reserve presses on with cuts to stimulus, Barnabas Gan, an economist at Singapore-based Oversea-Chinese Banking Corp., said in a phone interview. That’s about 13 percent lower than today’s price, and would be a 4.3 percent loss for the year. Silver will also decline, he said.
Gold climbed 70 percent from December 2008 to June 2011 as the Fed bought debt and held borrowing costs near zero to spur growth after the financial crisis. Prices ended the 12-year bull run last year as U.S. inflation remained low and central bank policy makers prepared to taper stimulus. Global growth is expected to strengthen in 2014 and quicken further next year, the International Monetary Fund forecast in April.
“Tapering is expected to continue and the path of least resistance for the second half of this year would be a stronger greenback,” said Gan, whose precious metals forecasts for the eight quarters to March were ranked behind only Societe Generale SA, according to Bloomberg data. “Improving global sentiment will also dilute gold as a safe-haven demand.”
The metal advanced 10 percent this year, posting the first back-to-back quarterly rise since 2011, as violence flared in Ukraine and Iraq and the dollar fell. Gold for immediate delivery climbed to $1,332.33 yesterday, the highest since March 24, and was at $1,326.30 at 8:53 a.m. in London today.
Demand has increased in Australia, the world’s second-largest producer, where sales from the Perth Mint climbed to the highest level in four months in June. Assets in the SPDR Gold Trust, the biggest bullion-backed exchange-traded product, rose 1.4 percent to 796.39 metric tons in the two sessions through yesterday, according to data compiled by Bloomberg. That’s the biggest two-day gain since November 2011.
Gold will drop to $1,050 in 12 months, Goldman Sachs Group Inc. said in a June 23 report, unchanged from its outlook at the start of the year. Bullion will resume a decline if and when geopolitical tensions ease, according to Barclays Plc.
The Fed said last month that growth in the world’s largest economy is bouncing back and the job market is improving as policy makers trimmed asset purchases for a fifth time to a monthly pace of $35 billion. The U.S. central bank’s bond-buying program will end this year, Gan said yesterday.
Fed Chair Janet Yellen will give a speech at the International Monetary Fund in Washington today that may address the outlook for interest rates. The Bloomberg Dollar Spot Index, which tracks the currency against 10 counterparts, was at 1,003.25 from 1,002.67 yesterday, the lowest close since May 6.
Silver may decline to $18.10 an ounce by the end of the year, tracking gold lower, according to Gan. Prices may find some support given silver’s exposure to industrial production, he said. The metal traded at $21.0557 an ounce, 8 percent higher this year after a 36 percent slump in 2013.
Gold’s quarterly advances came as Russia annexed the Ukrainian region of Crimea and an al-Qaeda breakaway group in Iraq and Syria made military advances. Holdings in gold-backed ETPs stood at 1,728.7 tons yesterday, 1.9 percent lower in 2014, data compiled by Bloomberg show.
The Bloomberg rankings were based on the accuracy of forecasts for the two years to March. Gan was behind Societe Generale’s Robin Bhar and ahead of Credit Suisse Group AG’s Tom Kendall. OCBC is the second-largest lender in Southeast Asia.
The U.S. expanded 3.5 percent in the second quarter after contracting 2.9 percent in the first three months, according to estimates compiled by Bloomberg. Euro-area growth will be 1.1 percent this year after a 0.4 percent contraction in 2013, the estimates show. China’s economy will grow 7.4 percent in 2014.
Global growth will strengthen from 3 percent in 2013 to 3.6 percent this year and 3.9 percent in 2015, the Washington-based IMF said in its World Economic Outlook in April.
“I would look at the geopolitical problems as short-term phenomenon, rather than a fundamental,” Gan said. “Whatever happens in a geopolitical setting, the global economic recovery most likely won’t be affected.”