Put away the champagne, gold bulls. The metal's best forecasters don't expect the party to last much longer.
Futures in New York are on pace for the biggest weekly rally since mid-June after China's surprise yuan devaluation roiled global markets and lifted demand for haven assets. Bulls shouldn't expect the good times to last, according to analysts at Oversea-Chinese Banking Corp., Itau Unibanco Holding SA and Barclays Plc.
The rally will crumble as investors move past the yuan drop and focus, once again, on the Federal Reserve's plan for raising interest rates, according to OCBC's Barnabas Gan, the most-accurate forecaster for precious metals last quarter based on rankings compiled by Bloomberg.
Prices have fallen about 5% since the end of June and reached a five-year low in late July. A decline this quarter would be the fifth-straight loss and the longest slump since 1997. The prospect for higher rates prompted investors to snub gold, since it doesn't pay interest, unlike competing assets. Low inflation, a rally in equities and a stronger dollar have also weighed on prices.
“The fear is subsiding as the yuan is stabilizing, and eyes may well turn back to Fed-watching again,” Singapore-based Mr. Gan said in an e-mail. “The prospect of the rate hike continues to dull gold as an investment.”
PRICE OUTLOOK
Gold futures for December delivery extended declines on Friday to $1,112.80 an ounce on the Comex in New York. They slid 0.7% Thursday, snapping five straight gains that was longest rally since May. Prices declined after the People's Bank of China quelled fears of broader currency wars with verbal support for the yuan.
Predicting that concern over the yuan devaluation will keep fading, Mr. Gan is sticking by his outlook for gold to reach $1,050 by December. He's not alone in forecasting losses.
“The U.S. rates will continue to dominate the market and keep gold under pressure,” said Artur Passos, who produces the metals outlook at Itau Unibanco Holding SA and is the second-most accurate forecaster for bullion.
Mr. Passos expects prices to touch $1,060 by the end of the year, he said by telephone from Sao Paulo. The metal touched a five-year low of $1,073.70 on July 24.
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Economists are standing by their projections for a September Fed rate rise. Seventy-seven percent of forecasters in a Bloomberg survey taken Aug. 7-12 said that the bank will raise its main policy rate next month, up from 76% in July. All respondents were given the opportunity to revise their forecasts following the yuan news. Gold prices are down 6% in 2015.
“The third quarter will be the weakest quarter,” Dane Davis, an analyst at Barclays and the third most-accurate forecaster for gold, said in a telephone interview from New York. “Gold rose because some investors initially thought the Fed would delay the rate increase after China devalued, but that seems to have passed.”
