Commodity: Gold Drops, Goldman Cuts Forecast

Gold declined in New York as prospects that the Federal Reserve will reduce monetary stimulus curbed demand for the metal as a protection of wealth. Silver also fell.

Gold slumped to $1,268.70 an ounce on June 21, the lowest since September 2010, after Fed Chairman Ben S. Bernanke said last week the central bank, which buys $85 billion of Treasury and mortgage debt a month, may trim stimulus this year and end the program in 2014 should the economy continue to improve. Goldman Sachs Group Inc. lowered its year-end price forecasts through 2014.

Bullion has slid 23 percent this year as some investors lose faith in it as a store of value, and as speculation grew that the Fed will taper debt-buying that helped the metal rally for 12 years. Investors are assuming an earlier tapering of quantitative easing and a Fed fund rate increase sooner than Goldman economists expect, analysts Damien Courvalin and Jeffrey Currie wrote in a report dated yesterday.

“The signal from the Fed has knocked the wind out of gold,” Sterling Smith, a Chicago-based commodity futures specialist at Citigroup Inc., said in a telephone interview. “The bearish sentiment has brought about more selling and is inhibiting buyers as they expect more downside.”

Bloomberg

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