Gold Euphoria Won’t Last With Yellen’s Rally Fading – by Debarati Roy, Nicholas Larkin and Fareeha Ali (Bloomberg News – June 24, 2014)

After the biggest gold slump in three decades left investors heartbroken, they’re following Taylor Swift’s advice and never, ever getting back together.

Janet Yellen, the one person able to make the lovers reconcile, did her best. Prices surged the most since September the day after the Fed chair signaled last week that low interest rates are here to stay. Traders and analysts surveyed by Bloomberg News aren’t expecting the euphoria to last. Volatility in futures is near a four-year low, at a time when trading volumes and open interest in Comex contracts are waning.

Prices will average $1,250 an ounce next quarter, about 5 percent less than now, according to the median of 15 estimates. The analysts were surveyed before and after the Fed’s June 18 outlook, and the forecast was unchanged. Even after a 28 percent plunge in 2013, the bears are emboldened by this year’s records in equity markets, and gold assets in exchange-traded products have shrunk to the smallest since 2009.

“The surge in gold can’t sustain itself,” Donald Selkin, who helps manage about $3 billion of assets as chief market strategist at National Securities Corp. in New York, said June 20. “It was a temporary spike because of a confluence of events: Iraq and Yellen. People will be looking at other areas for excitement. Holdings are down, so people are leaving gold in search of something better.”

Price Outlook

Gold for immediate delivery rose 9.8 percent to $1,319.52 an ounce in London this year, according to Bloomberg generic pricing. Bullion advanced on demand for haven assets as fighting erupted in Ukraine and Iraq.

Prices have slumped from a record $1,921.17 reached in September 2011. The Standard & Poor’s GSCI gauge of 24 commodities gained 5.5 percent since the end of December, while the MSCI All-Country World Index of equities rose 4.9 percent. The Bloomberg U.S. Treasury Bond Index added 2.7 percent.

The median of 15 analyst and trader estimates compiled by Bloomberg by June 18 showed gold will average $1,240 in the fourth quarter and $1,300 in the first three months of next year. By June 20, they were predicting $1,225 and $1,270 for the periods, not swayed by Yellen’s outlook for low borrowing costs and echoing the sentiment of Swift’s Grammy-nominated pop hit, “We Are Never Ever Getting Back Together.”

“You’ve had a bit of safe-haven demand and a bit of inflation-hedge demand,” Georgette Boele, a precious-metals analyst at ABN Amro Group NV in Amsterdam, said June 20. “The view doesn’t change on gold, because this is temporary. The other drivers have not changed.”

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