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Goldman Sachs Reiterates Call For $1,050/Oz Gold At Year-End

By Allen Sykora of Kitco News
Friday March 21, 2014 8:13 AM

(Kitco News) - Goldman Sachs reiterated its call for gold to fall to around $1,050 an ounce by year-end due to a recovering U.S. economy.

Prices rose sharply for most of the first quarter due to softer U.S. economic data, Chinese credit concerns and geopolitical tensions surrounding Ukraine, Goldman said in a report released late Thursday night.

“While further escalation in tensions could support gold prices, we expect a sequential acceleration in both U.S. and Chinese activity, and hence for gold prices to decline, although it may take several weeks to lift uncertainty around this acceleration,” Goldman said. “Importantly, it would require a significant sustained slowdown in U.S. growth for us to revisit our expectation for lower U.S. gold prices over the next two years.”

In particular, Goldman said it sees potential for 10-year TIPS yields to rise, thereby hurting gold. However, the bank said with the Federal Open Market Committee tapering its bond-buying program known as quantitative easing, any decline in gold will be data dependent and hinge upon U.S. economic releases.

U.S. economic data have been softer so far in 2014, but Goldman economists mostly see this as weather-related due to a harsh winter and look for economic growth to accelerate for the remainder of the year, the firm said. However, the bank said it could take several more weeks, until April economic data is released, to get confirmation that the economy is in fact picking up.

Goldman said it expects any decline in gold to be a data-driven “grind
lower” as market participants get progressive confirmation of U.S. growth acceleration. Such price action would be a contrast to the sharp sell-off in 2013, when Goldman said it had a bearish view driven by a disconnect between stretched long gold speculative positioning and stabilizing U.S. growth with low inflation.

“Beyond near-term uncertainty on the pace of U.S. growth, our base case forecast remains for a sequential acceleration in U.S. activity,” Goldman said. “As a result, we reiterate our bearish outlook for gold prices in 2014 and 2015 and our year-end forecast of $1,050/toz. While the first quarter
slowdown in activity creates risk that our expected price decline is delayed by one quarter, the more hawkish March FOMC which pointed to a potentially more aggressive path to less accommodative monetary policy is an offsetting risk.”

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The firm said gold demand in the key gold-consuming nations of India and China is unlikely to surprise to the upside. Indian imports were weak last year as the government put in place curbs meant to limit the amount of metal coming into the country due to the current-account deficit, although this led to smuggling of the yellow metal. Meanwhile, gold was used in Chinese financing deals, Goldman said.

“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) we expect a gradual unwind of gold backed financing deals,” Goldman said.

By Allen Sykora of Kitco News; asykora@kitco.com



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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