Gold will resume a decline as U.S. economic growth accelerates, according to Goldman Sachs Group Inc., which reiterated a forecast for the metal to end the year at $1,050 an ounce.
Bullion’s rally this year was spurred by poor U.S. data probably linked to the weather and rising tension in Ukraine, analysts led byJeffrey Currie wrote in a report, describing the reasons as transient. With the tapering of the Federal Reserve’s bond-buying program, U.S. economic releases will return as the driving force behind lower prices, he wrote.
Gold’s 12-year bull run ended in 2013 as the Fed prepared to reduce monthly bond-buying that fueled gains in asset prices while failing to stoke inflation. Prices rose 10 percent this year even as the Fed cut purchases, with Russia’s annexation of Crimea and mixed U.S. economic data boosting haven demand. Last year, Currie described gold as a “slam-dunk sell” for 2014.
“It would require a significant sustained slowdown in U.S. growth for us to revisit our expectation for lower gold prices over the next two years,” Currie wrote in the report, dated yesterday. “While further escalation in tensions could support gold prices, we expect a sequential acceleration in both U.S. and Chinese activity, and hence for gold prices to decline.”
Gold for immediate delivery traded 0.3 percent higher at $1,322.01 an ounce at 7:43 p.m. in Singapore, according to Bloomberg generic pricing, after the United Nations Security Council met to address the Ukraine crisis. Bullion last traded below $1,050 an ounce in February 2010.
Bullion is the least preferred commodity among metals as prices resume a decline this year on the outlook for rising U.S. interest rates and low inflation expectations, Morgan Stanley said in a report on April 8. Average prices are expected to drop for the next four quarters, it said.
Stronger U.S. growth this year and next will help the world economy withstand weaker recoveries in emerging markets, according to the International Monetary Fund. The world’s largest economy will expand 2.8 percent this year and 3 percent in 2015, unchanged from forecasts in January, the IMF said in its World Economic Outlook report last week.
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China’s demand for gold shows no sign of letting up. China’s demand for gold is set to rise by about 20% over the next few years, the World Gold Council has estimated, as the population becomes more wealthy.
The council estimates private sector demand for gold in China will rise to at least 1,350 tonnes by 2017.
Chinese customers bought 1,132 tonnes of gold last year, in jewellery as well as gold bars and coins for investment. The forecast comes as China becomes the world’s largest gold-consuming nation since last year, overtaking India.
The World Gold Council says China is at the “centre of the global gold eco-system”, as rapid urbanisation creates a rising middle class. Albert Cheng, from the World Gold Council, said: “The cultural affinity for gold runs deep in China and when this is combined with an increasingly affluent population and a supportive government, there is significant room for the market to grow even further.
“Whilst China faces important challenges as it seeks to sustain economic growth and liberalise its financial system, growth in personal incomes and the public’s pool of savings should support a medium term increase in the demand for gold, in both jewellery and investment.”
According to the council, consumers bought a record amount of gold last year, with Asia’s economic heavyweights China and India in the top two spots. In Western markets demand for the precious metal remained strong, particularly in the US, where people bought a lot of gold jewellery as well as gold bars and coins.