Goldman Sees Risk of Gold Below $1,000 as U.S. Economy Gains

 

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 1.5 percent to $1,311 on the Comex, the lowest since Aug. 9, and traded at $1,312.80 at 1:27 p.m. in Singapore. 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.

Wound Up

Global stocks tracked by the MSCI All-Country World Index have rallied 12 percent this year as the dollar rose 4.1 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.
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.

Inflation Risks

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 Traders Most Bearish Since June as Syria Eases: Commodities

Gold traders are the most bearish since June as the threat of an imminent attack on Syria eased and speculation mounted the Federal Reserve will start curbing stimulus as the U.S. economy improves.
Fifteen analysts surveyed by Bloomberg expect prices to fall next week, seven were bullish and three were neutral, the largest proportion of bears since June 21. Gold rose as much as 5.4 percent since the alleged Aug. 21 chemical attack in Syria that the U.S. said the government should be held accountable for. Prices retreated to a five-week low today as the U.S. pursued a proposal that Syria surrender its chemical weapons.

Gold is set for the first annual drop in 13 years as faith in the metal as a store of value weakened and the Fed indicated it could buy fewer bonds. Goldman Sachs Group Inc. said tapering may spur more gold sales and Societe Generale SA advised selling bullion. Prices rose to a three-month high Aug. 28 on concern that strikes on Syria will disrupt Middle East oil supply and stoke inflation, increasing demand for gold as a hedge.
“With Syria there may be some volatility going forward but I doubt if it will have an impact unless you have huge escalation,” said Georgette Boele, a commodities strategist at ABN Amro Group NV in Amsterdam. “If the Fed doesn’t surprise majorly in one way or another and the sentiment improvement continues, there’s no reason to be in gold.”

Oil Futures

The metal fell 22 percent to $1,307.23 an ounce in London this year and tumbled into a bear market in April. Prices slid as much as 9 percent since Aug. 28. The Standard & Poor’s GSCI gauge of 24 commodities added 0.2 percent this year and the MSCI All-Country World Index of equities gained 12 percent. The Bloomberg U.S. Treasury Bond Index lost 3.8 percent.
Oil futures fell 4.2 percent since reaching a two-year high on Aug. 28. U.S. President Barack Obama said Sept. 10 he was asking Congress to postpone the vote authorizing military action following a Russian-backed proposal to place Syria’s chemical arsenal under international control. Syria said it would abide by an international treaty banning the chemical arms.
There are signs bullion demand is already waning after prices jumped 11 percent from a 34-month low in June. Sales of coins and bars from Australia’s Perth Mint dropped 46 percent in August from July. The U.S. Mint sold 11,500 ounces of American Eagle gold coins in August, the least in six years and down from as much as 209,500 ounces in April.

Price Outlook

The rebound in gold is over and investors should sell as it drops toward $1,200 by the end of this year, Societe Generale said in a Sept. 10 report. Prices will be at $1,300 in three months and $1,175 in a year as the U.S. economy strengthens and the Fed slows stimulus, Goldman said in a report the following day. It says there’s a risk it could drop below $1,000. ABN Amro predicts $1,100 by the end of the year.
The metal rose 70 percent from December 2008 to June 2011 as the U.S. central bank pumped more than $2 trillion into the financial system by buying debt. Policy makers will cut monthly purchases by $10 billion at their Sept. 17-18 meeting to $75 billon, a Bloomberg News survey of 34 economists Sept. 6 showed.
The central bank reiterated in July that near-zero borrowing costs will be appropriate as long as the unemployment rate remains above 6.5 percent and the inflation outlook doesn’t exceed 2.5 percent. The jobless rate was 7.3 percent in August, the Labor Department said Sept. 6. Consumer prices increased 2 percent in the 12 months ended in July.

Bond Buying

“Tapering concerns are overblown,” said Adrian Day, who manages about $135 million of assets as the president of Adrian Day Asset Management in Annapolis, Maryland. “Even a reduction in bond buying from $85 billion a month to $65 billion is still a lot of new stimulus.”
Hedge funds and other large speculators are the most bullish since January, increasing their net-long position by 3.6 percent to 101,396 futures and options in the week through Sept. 3, U.S. Commodity Futures Trading Commission data show. While wagers on gains more than tripled since the end of June, the position is still 49 percent below the level reached when prices set a record $1,921.15 in September 2011.
John Paulson, the billionaire hedge fund manager and biggest investor in the SPDR Gold Trust, the largest gold-backed exchange-traded product, cut his stake in the fund by 53 percent last quarter, a government filing showed. Global holdings that fell every month this year are little changed since reaching a three-year low of 1,946.9 metric tons on Aug. 8, data compiled by Bloomberg show. The combined holdings are now valued at $82 billion, from a peak of $147.7 billion in October.

Moving Averages

Gold fell below its 100-day moving average this month after rising above the measure in August. It had held below the indictor since December and September’s drop also took prices below the 50-day moving average this week. Some analysts study technical charts to gauge possible future price moves.
Five of 10 people surveyed expect raw sugar to gain next week and five were bearish. The commodity slid 9.4 percent to 17.68 cents a pound on ICE Futures U.S. in New York this year.
Twelve of 27 surveyed anticipate lower corn prices and six said the grain will rise, while 13 of 28 said soybeans will gain and nine expect lower prices. Ten predicted advances in wheat and eight were bearish. Corn fell 33 percent to $4.645 a bushel this year in Chicago. Soybeans lost 0.8 percent to $13.98 a bushel, as wheat dropped 17 percent to $6.49 a bushel.

Copper Survey

Six traders and analysts surveyed expect copper to fall next week, five were bullish and eight neutral. The metal for delivery in three months, the London Metal Exchange’s benchmark contract, dropped 11 percent to $7,057.50 a ton this year.
The S&P GSCI gauge of raw materials fell 4 percent since a six-month high on Aug. 28, partly because of the drop in oil and gold futures which account for about half the index.
“The market is really expecting some tapering,” said Michael Widmer, head of metal markets research at Bank of America Merrill Lynch in London. “If you get $20 billion in cuts everything would be hit very hard. If you get a little bit of tightening, but not as much as the market expected, and you have stronger growth, then prices could remain strong.”