Gold will extend declines this year as gains in equity markets reduce the need for haven assets and increased regulation hurts risk appetite, according to Morgan Stanley, which lowered its bullion forecasts.
This year’s target was cut 12 percent to US$1,160 an ounce and the prediction for next year was reduced 13 percent to US$1,138, analysts Peter Richardson and Joel Crane wrote in a report yesterday. Gold remains under pressure as the global recovery gains traction, increasing the risk of higher interest rates, they said.
Bullion’s 12-year bull run ended last year, as US Federal Reserve policymakers decided to cut monthly bond purchases that fueled gains in asset prices while failing to stoke inflation. Prices sank 28 percent last year, capping the biggest annual decline since 1981. Morgan Stanley’s view adds to bearish forecasts for gold from Goldman Sachs Group Inc to ABN Amro Group NV.
“Price performance will continue to suffer as long as risk assets in general and US equities in particular continue to perform strongly, undermining the need for portfolio managers to hold more than a modicum of safe-haven assets,” analysts said in the report.
There is “more pain to come,” they said.
Gold for immediate delivery traded little changed at US$1,240.83 at 3:31pm in Singapore yesterday, after averaging US$1,410.89 last year and U$1,668.75 one year earlier. The Standard & Poor’s 500 Index posted its biggest annual gain since 1997 last year as holdings in gold-backed exchange-traded products (ETP) shrank 33 percent, or 869 tonnes, according to data compiled by Bloomberg.
Bullion is to fall to US$1,050 in the next 12 months, as the US central bank pares stimulus, Goldman Sachs analysts said in a Jan. 12 report.
Gold may end this year at US$1,000 an ounce, ABN said on Jan. 10.
Prices will average US$1,219 this year, according to a London Bullion Market Association survey of traders and analysts.
Assets in ETPs will contract 200 tonnes this year and a further 150 tonnes next ear, Morgan Stanley said.
While lower prices may boost physical demand in China, that will not reverse the slump spurred by investors reducing their net-long position in futures and cutting ETP holdings, Richardson and Crane said in the survey.
Increased demand in China, which probably overtook India as the world’s largest consumer last year, helped gold rebound from a six-month low of US$1,182.52 on Dec. 31. China imported 1,017 tonnes of gold from Hong Kong in the first 11 months of last year, almost double 2012’s total, according to Hong Kong government data.
Morgan Stanley lowered this year’s silver forecast 10 percent to US$19 an ounce and trimmed the estimate for next year of 13 percent to US$18.86, the report said.
Palladium remains the “stand- out preference” among precious metals as supply is expected to lag behind consumption, analysts said.