Editor's Note: The article was updated to add Standard Chartered's gold forecast for 2014.
(Kitco News) - Banks and investment houses see weaker prices ahead for gold in 2014, as the Federal Reserve is expected to begin tapering its quantitative easing program and the U.S. economy is expected to pick up. If the current price pattern holds, this year will be the first time since 2001 that gold prices will end the year on a loss. Below is a collection of forecasts put out so far by the major banks and investment houses:
Bank of America Merrill Lynch:
The bank forecast that gold will average $1,294 an ounce over the next year, listing a first-quarter average forecast of $1,250 but a rise to a $1,350 average in the fourth quarter. BofA Merrill Lynch said it looks for gold to underperform platinum and silver. Gold could slide on further liquidation of existing positions. The Fed, which has been accommodative with ultra-loose monetary policy, will eventually tighten its monetary policy, and with higher opportunity costs, gold will find headwinds. “In our view, upside remains limited for now, in part because none of the concerns that brought investors to the market post-recession materialized - for instance, inflation remains low and USD has not debased. Also, the tighter monetary policy in the U.S. and rising rates are hanging over the market and could push gold towards $1,100/oz in 2014,” they said.
Gold prices have further to fall, says CIBC. They forecast gold to end 2014 at $1,000 an ounce. Expectations that the Federal Reserve will begin tapering its quantitative easing program, a slowdown in net buying of gold by central banks and the likelihood of a stronger dollar all weigh on gold. Further, the bank says, even though exchange-traded funds have seen liquidation, holdings remain high historically, so further outflows are possible. The bank says it doesn’t expect gold to receive any support from possible Washington brinkmanship in early 2014, judging by how the market acted earlier this year.
Citi Research looks for gold to average $1,255 an ounce in 2014, falling early in the year on expectations for tapering of Federal Reserve quantitative easing but drawing support from continued Chinese buying. Other factors prompting Western investors to reassess their exposure to gold include lower inflation expectations and a move from gold into other asset classes, said Citi.
The German bank expects gold will shake off its current weakness, and is predicting prices to end 2014 at $1,400 an ounce. It says investment demand should revive gradually, along with continued robust demand from Asia. They expect the trend of gold moving out of the West and to the East to continue as China is absorbing the gold coming out of exchange-traded funds. Indian demand in 2014 should be similar to 2013, and even though India’s government sought to temper demand, record premiums show demand is still strong. The key factor for gold will be investment demand as strong demand “is essential for upward movement in the gold price.”
Goldman is forecasting “significant” – that is more than 15% - declines in gold from areas it was trading around mid-November, which was about $1,275. It forecast gold prices to fall to $1,050 by the end of 2014.
Higher real U.S. interest rates will pressure gold, said Standard Chartered. They forecast an average spot gold price of $1,200 an ounce for next year. They expect the Federal Reserve to begin tapering its quantitative easing program in June as the U.S. economy improves. The bank said when the idea of the Fed beginning to end stimulus first was announced, gold prices eventually fell about $420 and real U.S. interest rates rose about 108 basis points. Their economists forecast 10-year U.S. yields to rise by 70 basis points to 3.4% by the fourth quarter, primarily via real yields as opposed to inflation effects, which leads their commodity analysts to target an average gold price of $1,200.
UBS lowered its average 2014 gold-price forecast by 9% to $1,200 an ounce, saying gold is hampered by investor selling interest and limited support to push up prices. “Gold is unlikely to regain its former appeal,” said Joni Teves, UBS analyst. “The more upbeat outlook on the global economy, the reduction of tail risks, and the growing appetite to take on more risk suggests that safe havens like gold will become even more unfashionable up ahead. The yellow metal’s performance this year highlights the extent to which gold has lost its allure and implies that it will take a very substantial change in the macro picture for this to be reversed.”
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By Debbie Carlson firstname.lastname@example.org