Gold to decline as US and Chinese activity picks up – Goldman Sachs

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Glenys Sim Singapore

Gold would resume a decline as US economic growth accelerated, Goldman Sachs said yesterday as it reiterated a forecast for the metal to end the year at $1 050 (R10 995) an ounce.

Bullion’s rally this year had been spurred by poor US data linked to the weather and rising tension in Ukraine, analysts led by Jeffrey Currie wrote, describing the reasons as transient. With the tapering of the Federal Reserve’s bond-buying programme, US economic releases would return as the driving force behind lower prices, they wrote.

Gold’s 12-year bull run ended last year as the Fed prepared to reduce monthly bond-buying that fuelled gains in asset prices while failing to stoke inflation. The price has risen 10 percent this year even as the Fed cut purchases, with Russia’s annexation of Crimea and mixed US 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 US growth for us to revisit our expectation for lower gold prices over the next two years,” he wrote in the report. “While further escalation in tensions could support gold prices, we expect a sequential acceleration in US and Chinese activity, hence for gold prices to decline.”

Gold for immediate delivery traded 0.3 percent higher at $1 322.01 an ounce at 7.43pm in Singapore yesterday, after the UN Security Council met to address the Ukraine crisis. Bullion last traded below $1 050 an ounce in February 2010.

Stronger US growth this year and next will help the world economy withstand weaker recoveries in emerging markets, according to the International Monetary Fund (IMF).

The world’s largest economy would 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. – Bloomberg


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