Goldman Sachs has reiterated its recommendation to short gold, which has so far risen more than 17 percent since the start of the year.
The metal has climbed strongly from its 2015 low early in December to reach a 2016 high in mid-March of $1,282.90. It recently traded at $1,246.20/1,246.60 per ounce, up $3.20 on Thursday’s close.
The rally was initially driven by concerns about global growth and asset price volatility and the corresponding dovishness by the Fed, which saw gold outperform, the bank said in a note on Friday.
More recently, risky assets have rallied sharply and gold has underperformed while sentiment about Chinese and global growth has improved and while the market continues to price in a cautious Fed, it added.
Goldman expects recent and forthcoming US data, supported by easing financial conditions, to result in a more hawkish Fed, higher yields, a stronger dollar and the return of divergence.
This in turn is likely to put downward pressure on gold prices towards the bank’s near-term target of $1,100.
“Gold has very limited near-term upside in our view, reflecting a limited ability of the Fed to surprise on the dovish side – the market is now only pricing 25 [basis points] of rate increases during 2016 and given very high levels of gold net speculative positioning and ETF holdings,” it said.
(Editing by Mark Shaw)