Goldman Sachs Cuts Gold Price Forecast


Goldman Sachs became the latest investment bank to downgrade its gold price forecasts on Monday. The reason behind the revision is the brightening U.S. economic outlook.

The investment bank revised its end-2013 gold price forecast to $1,300 a troy ounce from prior estimate of $1,435 a troy ounce.

Goldman’s analysts expect gold to decline further in the medium term: “Medium term, we expect that gold prices will decline further given our U.S. economists’ forecast for improving economic activity and a less accommodative monetary policy stance.”

Far more drastic is the revision of the 2014 gold price forecast. Goldman’s analysts sees gold ending 2014 at $1,050 an ounce. This is nearly 20% lower from the previous forecast.

Gold price plunged 6.3% in a single session last week after U.S. Federal Reserve Chairman Ben Bernanke said the U.S. central bank could start winding down its $85-billion-a-month bond-buying program later this year. He also said the bank could even cease the purchases in 2014 if growth picks up. The optimistic projections suggest unemployment rates to come down and inflation to move closer to the central bank’s 2% target. The Fed’s bond-buying program has been a major support to gold prices in recent years and therefore news of its halt have such a negative effect on the markets.

Gold buying by central banks “will not be sufficient to offset this decline in prices,” said Goldman Sachs.

However, elsewhere, the World Gold Council reports increase in demand during the first quarter of 2013 and Asian central banks’ buying.

Lower gold prices already prompted producers to scale back production of the yellow metal. Therefore, prices may find longer-term support at the $1,200 an ounce level, projects Goldman.

In other news, Barrick Gold will reportedly lay off up to a third of corporate employees at its headquarters in Toronto and a few other offices. Nearly 400 workers are considered corporate staff. The executive job cuts come as Barrick reduces headcount at it mine sites amid falling gold prices, and amid operational and regulatory issues.



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