Goldman Sachs Forecasts Gold Rally As US Debates Debt

SINGAPORE: Gold may climb over the next three months as US lawmakers attempt to tackle the country’s debt ceiling as the world’s largest economy slows, Goldman Sachs Group said, advising investors to place bets on advances.

“We see current prices as a good entry point to re-establish fresh longs,” analysts Damien Courvalin and Alec Phillips wrote in a January 18 report.

The bank reiterated a three-month target of $1,825 an ounce, as well as a forecast for prices to weaken in the second half as the US economy rebounds. Gold fell 5.5% last quarter, the worst performance since 2008, on expectations for a recovery and potential end to central bank stimulus in the US.

An advance to $1,825 would be consistent with rallies into debt-ceiling decisions , the analysts wrote. Since 1960, Congress has raised or revised the debt limit 79 times, according to the Treasury Department.

“The uncertainty associated with these issues, combined with our economists’ forecast for weak US GDP growth in the first half of 2013 following the negative impact of higher taxes will push gold” to the threemonth target, they wrote. Gold, which rallied for a 12th year in 2012, traded at $1,688.50 an ounce on the Comex at 5:40 pm in Singapore.

Holdings in exchange-traded products reached a record last month, data compiled by Bloomberg show. Mostactive prices last traded above $1,825 an ounce in September 2011. The Treasury has said the US will exceed its $16.4 trillion borrowing authority sometime from mid-February to early March.

Financing for government agencies is set to lapse on March 27, and lawmakers must pass new spending or cause a shutdown. Also in March, Congress will confront the $110 billion in automatic spending cuts that were postponed in a January 1 tax deal.

Goldman restated its outlook for lower prices in the second half of this year, a call echoed by Credit Suisse Group and Allan Hochreiter, as the US recovers. As growth improves, prices will likely decline even with continued central bank and exchangetraded fund demand, Goldman said.

Gold’s bull market is over, Allan Hochreiter, CEO, Rene Hochreiter , the top forecaster in the London Bullion Market Association’s 2012 poll, said this month. The metal’s appeal is set to diminish as so-called fear trades fade, according to Credit Suisse’s Tom Kendall, head of preciousmetals research.

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