Goldman Sachs has today released a report outlining its current views on gold in the context of Syria, tapering of quantitative easing by the US Federal Reserve, and another looming US debt ceiling debate.
Overall, Goldmans is weary of risks posed by political posturing over the US debt ceiling, and the possibility that it could induce a gold price spike. However, it remains bearish on gold over the medium-term, due to likely higher real interest rates/growth in the US, slower demand from emerging markets (most notably India), elevated holdings by exchange-traded funds (ETFs), as well as gradually tightening US monetary policy. Accordingly, it sees 20% potential falls from current prices by end-2014.
…given the recent string of slightly disappointing US economic data, we remain neutral relative to gold prices until the end of this year. In particular, our US economists’ expectations for a “dovish” taper and gold’s recent decline will likely limit the downside to gold prices heading into the September FOMC. Importantly, we continue to expect that gold prices will resume their decline heading into 2014 when we expect economic data to solidly confirm a reacceleration in US growth and warrant a less accommodative monetary policy stance. Our end of 2014 price forecast therefore is unchanged at $1,050/toz, implying 20% downside potential from current prices…
A more hawkish taper then we currently expect would likely precipitate a decline in gold prices given the rebound in speculative positioning since June. Beyond this near-term risk, the recent pressure on EM economies and current accounts could accelerate the decline in gold prices as it forces such countries to slow their domestic gold demand, imports and reserve accumulation.
