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According to Goldman Sachs analyst Jeffrey Currie, the price of gold could fall much further in the coming months. Although the gold price in euros is still just under 10% higher than at the beginning of this year, the return in dollars has almost completely evaporated. "The risks are overwhelmingly negative for gold. Much of the support this year came from geopolitical uncertainty in Ukraine and in the Middle East and those uncertainties have faded.", the analyst stated in a call with Bloomberg.
In the first half of this year, gold outperformed stocks and bonds, but in the third quarter of this year, gold will show a decline for the first time in 2014. According to Bloomberg, the demand for gold as a protection of assets has decreased due to the strengthening of the US economy. At the same time, the S&P 500 stock market gauge rose to a new all-time high this month.
The Gold price in dollars fell to its lowest level in eight months this week after the Federal Reserve announced its plans for a future interest rate hike. Higher interest rates make it more attractive for asset managers to remove gold from their portfolios and replace it with financial assets that yield higher returns.
The fact that asset managers are reducing their weighting in gold is evidenced by the decline in the gold holdings of the GLD ETF. This month alone, banks withdrew more than 20 tonnes of gold from the fund. GLD's total gold holdings are less than 780 tonnes at the time of writing, the lowest level since December 2008. At the beginning of this year, there were about 800 tonnes of gold in the world's largest gold ETF. The following chart shows the evolution of the gold stock in this ETF since the beginning of the year.
"Gold reacts more strongly to the short-term growth momentum of the U.S. economy than it does to long-term inflation concerns," Goldman Sachs analyst Damien Courvalin previously stated in an interview with Bloomberg. Interest in gold is lower now than it was 18 months ago.
It's not just Goldman Sachs that has been negative on gold for some time now. Société Générale analyst Michael Haigh also predicted a sharp drop in the price of gold last year, as did Jeffrey Currie. According to Haigh, between now and 2015 there is still about 5% of the gold price to lose.
Goldman Sachs has set a price target of $1,050 per troy ounce for the yellow metal by the end of this year, a target that Currie is still sticking to. Citigroup is also negative about gold. Earlier this week, the bank lowered its price target on the precious metal from $1,365 to $1,225 per troy ounce for the year 2015. Swiss bank UBS believes that gold prices will remain around current levels. It lowered its price target for the next three months by 7.7% to $1,200 per troy ounce.
