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Goldman Sachs, Deutsche Bank Slash Gold Forecasts

By Michelle Smith   |   Friday, 12 Apr 2013 09:01 AM

Wall Street firms are lowering their expectations for gold after the metal posted losses during the first quarter.

Gold is down about 6 percent so far this year, according to Reuters.

Deutsche Bank slashed its year-end forecast for the metal nearly 12 percent, from $1,856 per ounce to $1,637 an ounce, CNNMoney reported.

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In addition, Goldman Sachs slashed its 12-month forecast from $1,550 to $1,390, according to Dow Jones. The firm also reduced its three- and six-month forecasts, indicating expectations for weaker-than-expected prices in the short term.

“Given gold's recent lackluster price action and our economists’ expectation for higher U.S. real rates, we are lowering our [U.S. dollar]-denominated gold price forecasts again,” Dow Jones quoted Goldman Sachs as saying.

Both firms pointed to improving conditions in the US economy. Despite some recent disappointing data, including the March employment report, there is a general sense that things have gotten better and there is a lot of optimism that will continue.

Gold has a reputation as a safe-haven asset and has attracted much support in recent years on that basis. But 2013 kicked off with a significant shift in sentiment. Investors have displayed a renewed risk-on mentality and have been moving into more cyclical assets and plowing in rallying equity markets.

Events such as the financial crisis in Cyprus, political tensions created by North Korea and the announcement of an unprecedented stimulus program have all failed to pull gold out of its recent rut. On the contrary, the metal fell to a 10-month low in April, Reuters reported.

Analysts at Deutsche Bank consider this “apparent disregard” of events that would have traditionally driven demand to be an indicator of waning interest in safe havens, including gold, according to CNNMoney.

Famed investor George Soros foresees central banks continuing to make gold purchases, but according to Reuters, he said that the metal's safe-haven status is “destroyed.”

Inflation is also considered a major driver for gold, as many say the metal is the best store of value.

But, according to Goldman Sachs analyst Damin Courvalin, it will be quite some time before investors will need that type of protection. The risk of inflation is “likely several years away,” CNNMoney quoted him as saying.

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