By Jan Harvey
LONDON (Reuters) - Goldman Sachs said on Wednesday
gold's current price cycle will likely turn next year as a rise in real
interest rates on the back of improved growth offsets any further
balance sheet expansion from the Federal Reserve.
Goldman cut its three, six and 12-month forecasts for
gold prices - currently near $1,700 an ounce - to $1,825 an ounce,
$1,805 an ounce and $1,800 an ounce respectively.
It also introduced a 2014 forecast of $1,750 an ounce,
suggesting price growth could tail off. In a 12-month forecast released
in May, it predicted a gold price of $1,940 an ounce.
"Medium term... the gold outlook is caught between the
opposing forces of more Fed easing and a gradual increase in real rates
on better U.S. economic growth," Goldman Sachs said in a report.
"Our expanded modelling suggests that the improving
U.S. growth outlook will outweigh further Fed balance sheet expansion
and that the cycle in gold prices will likely turn in 2013."
The bank added however, that with risks to its growth
outlook still elevated, especially given the uncertainty around the
fiscal cliff, calling a price peak was "a difficult exercise."
Gold prices are set for a twelfth year of growth in
2012, with rock-bottom interest rates, concerns over the financial
stability of the euro zone and diversification into bullion by central
banks all driving gains.
The bank said its forecasts for higher gold prices in
recent years had been motivated by ultra-low real interest rates and
central bank gold buying, which last year hit its highest since the
mid-1960s at 455 tonnes.
However, it said it had since noted that not all
announcements of quantitative easing measures, a form of loosening
monetary policy, had driven price spikes.
The bank said gold prices reacted less to easing that
did not require Fed balance sheet expansion, such as its Operation Twist
programme, than to announcements of easing through expanding its
balance sheet.
"(Our) forecast for limited upside to gold prices
accounts for our economists' expectation for further Fed easing later in
2013, suggesting that an improving U.S. growth outlook more than
offsets the potential for further Fed balance sheet expansion," it said.
"Absent additional easing in late 2013, we expect gold
prices to decline at a faster pace in 2014 and to reach $1,625 an ounce
by year-end," it added.
"Under a weaker U.S. growth outlook, gold prices will likely trend higher, reaching $1,900 an ounce by the end of 2013."
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