One of the star performers of 2014 has been gold.
It started the year around $US1200/oz and recently nearly got to $US1400/oz before slipping back a bit.
In a new note, Goldman argues that the rise in gold has been driven by three unsustainable factors: Weather-induced economic slowdown in the US, a spike in Chinese demand due to credit concerns, and increased geopolitical tension.
The firm argues that all of these tailwinds will fade and that gold will hit $US1050 this year:
While we see clear catalysts for the recent rally in gold prices, this move has been large relative to US real rates which are a key input into our forecasts and benchmarking of gold prices. As a result, we see potential for a meaningful decline in gold prices towards the level implied by 10-year TIPS yields, which our rates strategists expect to rise further this year, and reiterate our year-end $US1,050/toz gold price forecast. More broadly, we believe that with tapering of the Fed’s QE, US economic releases are back to being a key driving force behind gold prices. As a result, we expect that the decline in gold prices will likely be data dependent, in contrast to our 2013 bearish gold view which was driven by the disconnect between stretched long gold speculative positioning and stabilizing US growth.