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Goldman Sachs Slashes 2013 Gold Price Forecast

Written By Brian Hicks

Posted March 4, 2013

The excitement over the price of gold has been running rampant in recent years, exceeding the standards of many people who consider themselves experts in the field of investment. As of late, however, not all analysts and investors are optimistic about where gold is going. 

According to the Wall Street Journal, Goldman Sachs (NYSE: GS) mentioned in a memo to investors last week that their forecast of the price of gold in 2013 would be slashed from $1810/oz to $1600/oz. This comes after the firm had already predicted a lower turn for gold in the second half of the year, although it was not expected that the shift would happen this early on in 2013.

Perhaps as a result of the news, global gold exchange-traded funds plummeted last week, suffering from an outflow larger than has been seen since January 2011. Before this occurred, the price of the metal had risen above $1600 as a result of the continuation of the central banks’ bond-buying programs.

Up until recently, speculation over the price of gold had been just that: speculation. The slashing by Goldman Sachs, however, comes as a result of the fact that U.S. interest rates are increasing, coupled with the recent drop in the price of the metal. A decline in price has been affecting sales of the metal since October, although the price of gold has fallen sharply in just the past two weeks.

According to Reuters, the gradual increase in U.S. real rates has had one of the biggest effects on the price of gold. U.S. economic data has been performing better than expected as of late, reflecting a lower level of U.S. fiscal risks. 

These and perhaps other factors have all had a dramatic influence on the price of gold and where it is likely to go, confirming the predictions that many analysts have had for the second half of 2013.

In December, Goldman Sachs had predicted a turn in the bull cycle of gold, citing reasons such as those stated above. While expected to happen in the second half of 2013, price predictions for 2014 were also cut.

Originally sitting at $1750/oz, gold is now expected to fall to $1450/oz next year. Since gold prices have fallen nearly 5% in this year alone, it comes as no surprise why predictions such as these might be made. 

As one might expect, many analysts and investors are getting gradually more nervous about what this means for the future of gold as a commodity and precious metal. A turn in the gold cycle could be long-lasting, reaching far beyond the predictions already being made for the remainder of this year into 2014. 

It’s entirely possible that a turn in the gold cycle could last for a short period of time only, although it would require a dramatically sharp turn in order for gold to fully recover to the point where it has been. 

For the most part, a turn in the gold cycle is thought to be seen as a more long-term change than anything else, especially given the state of the economy in America and the fact that U.S. real interest rates are going up.

There is also the fact that investors simply don’t have the same love for gold that they perhaps once did. According to The Telegraph, many investors have been turning away from the market for gold, withdrawing money from the SPDR Gold Trust (NYSE: GLD) consistently for the past seven months.

Since there has been an improvement in the performance of the stock market, investors are putting more focus and money into this aspect of their portfolios and leaving gold behind. The fact that the environment for gold is underperforming at the moment and is likely to continue doing so certainly does not help in getting investors to stay on board with the precious metal.

Even with issues such as this, gold is loved by many throughout the world, and the price is unlikely to fall to absurdly low figures. For now, however, it can be assumed that the next year or two will likely be rough for the precious metal, seeing prices drop more than they have in some time. Investors will likely continue to reevaluate their decisions, perhaps moving away from gold and focusing instead on stocks.