Goldman sees gold price falling 20% by year-end

Goldman says gold still in bear grip

The gold price bounced back on Friday, regaining some of the ground lost yesterday when upbeat comments on the US economy from the Fed strengthened the dollar and sent gold in the opposite direction.

On the Comex division of the New York Mercantile Exchange, gold futures for June delivery last traded at $1,335.40 an ounce, up less than $5 an ounce from yesterday’s close, but off sharply for the week.

On Monday the metal hit a high above $1,380, the best level since June and up 14.8% since the start of the year.

The 2014 rally in the price of gold has not convinced most bears, and Business Insider quotes Goldman Sachs on Friday reiterating its call for gold to fall to around $1,050 an ounce by year-end due to a recovering US economy and rising interest rates.

“While we see clear catalysts for the recent rally in gold prices, this move has been large relative to US real rates which are a key input into our forecasts and benchmarking of gold prices.

“As a result, we see potential for a meaningful decline in gold prices towards the level implied by 10-year TIPS yields, which our rates strategists expect to rise further this year, and reiterate our year-end $US1,050/toz gold price forecast.

“More broadly, we believe that with tapering of the Fed’s QE, US economic releases are back to being a key driving force behind gold prices. As a result, we expect that the decline in gold prices will likely be data dependent, in contrast to our 2013 bearish gold view which was driven by the disconnect between stretched long gold speculative positioning and stabilizing US growth.”

The New York-based bank also poured cold water on suggestions that renewed Asian demand will give the price a boost saying a “surprise to the upside” is unlikely reports Kitco:

“While we see potential for these shifts to reverse in 2014, we estimate the net impact will not be meaningful to our gold outlook as: (1) India’s potential easing of gold import tariffs will likely remain modest given how
much lower gold imports have contributed to its improved trade balance, (2) [In China} we expect a gradual unwind of gold backed financing deals,” Goldman said.

The median forecast for the fourth quarter 2014 of the nine gold analysts tracked business news wire Bloomberg is $1,165 an ounce and the two most accurate gold price forecasters in the group are even more bearish seeing declines similar to that of Goldman Sachs.