Gold could fall below $1,000 an ounce: Goldman Sachs
The bear market for gold likely hasn’t seen its bottom, according to Goldman Sachs (NYSE:GS) . The multinational investment banking firm says gold is at risk of dropping below $1,000 an ounce, as global demand for the yellow metal wanes. Back in June Goldman forecasted bullion to fall to $1,050 an ounce by the end of 2014.
Much like its previous forecast, Goldman warns gold prices will decline further as economic activity in the US picks up, which will lead to less accommodative monetary policy. Over the past four years the Federal Reserve has pumped more than $3.5 trillion into the economy, helping the Standard & Poor’s 500 to rebound more than 150 percent in that time. The markets expect the first tapering of the Fed’s $85 billion in monthly asset purchases to begin after the FOMC wraps up its next policy meetings on Wednesday.
Along with equities, commodities too have reaped the benefits of Fed stimulus. Gold hit a record high of $1,908.00 in August 2011, and traded north of $1,600 for most of 2012. Earlier this year bullion plunged the most in 33 years, trigged by an unexpected slowdown in China’s economic expansion. Since then, the market for the yellow metal has been capped by monetary policy expectations and a bullish US dollar, increasing the opportunity cost of gold investment.
Many market participants have lost confidence in gold’s safe haven value, opting to park their resources in other assets. According to Goldman, the mid-cycle price of bullion is somewhere around $1,200 an ounce, but could potentially overshoot to the downside, which is at $1,050. According to a head commodities researcher at UBS AG, the markets can expect a move toward $1,000 by next year.
Gold futures have declined 22 percent this year. Gold declined another 1.65 percent Friday to $1,308.60 an ounce.
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