Goldman Sachs cuts 2013, 2014 gold price forecasts

LONDON (Reuters): Goldman Sachs cut its 2013 gold price forecast to $1,600 an ounce from $1,810 an ounce, saying the metal’s recent price drop and an increase in U.S. real interest rates have led it to bring forward its projections for a decline in the metal.

If that projection proves accurate, it will mark the first year gold has recorded a lower average price year-on-year since 2001, when its record-breaking 12-year bull run began.

“Gold prices sold off sharply over the past two weeks, extending the decline that started last October,” the bank said in a note dated 25 February.

“Most of this price decline has coincided with a gradual increase in US real rates, reflecting the combination of better-than-expected US economic data, a more hawkish interpretation of recent Fed communication and a lower level of US fiscal and European sovereign risks.”

“Net, these moves in gold and real rates have anticipated the turn in the gold cycle that we had expected for the second half of 2013.”

Goldman predicted a turn in gold’s bull cycle in December, saying a rise in real interest rates on the back of improved growth could offset any further balance sheet expansion from the Federal Reserve.

The bank also cut its 2014 forecast to $1,450 an ounce from $1,750 an ounce. It reduced its three-month price view to $1,615 an ounce from $1,825 an ounce, its six-month forecast to $1,600 from $1,805, and its 12-month view to $1,550 from $1,800.

Gold prices have fallen nearly 5% this year, touching a seven-month low last week of $1,554.49 an ounce after minutes of the Federal Reserve’s last meeting suggested some officials thought the bank might have to slow or stop buying bonds even before a pick-up in hiring.

“The decline in prices since last fall and our updated forecast suggests that the turn in the gold price cycle is likely already underway,” Goldman said. “As a result, although our US economic forecasts point to modest near-term upside to gold prices, we believe that a sharp recovery in prices to our previous price forecast is unlikely.”

“In fact, we suspect that if indeed our forecast for further declines in gold prices proves correct, the fall in prices could end up being faster and larger than we expect as net long positions across COMEX futures and ETFs remain near their record highs.”