Gold will probably extend its decline through 2014, even as the commodity super cycle that’s brought longer-than-average rising prices may persist for a further two decades, according to Societe Generale SA.
Bullion may average $1,150 an ounce next year, said the head of commodities research, Michael Haigh, who in April correctly predicted the metal’s rout. That would be the lowest annual average since 2009, data compiled by Bloomberg show.
Gold is heading for its first yearly loss since 2000 as some investors lost faith in the metal as a store of value after the U.S. Federal Reserve said it may slow asset purchases this year if the economy continues to improve. While Societe Generale is bearish on bullion, it expects the decade-long bull market in commodities to extend for a further 15 to 20 years, driven by rapid urbanization and growing population in countries including China and India, said Haigh.
“It would take something dreadful to happen to make the super cycle suddenly end,” said Haigh, citing risks including a sharp slowdown in China, a scenario the bank doesn’t expect. “If you believe that the third super cycle is a function of population and urbanization, you’re looking at another 15 to 20 years. But it’s not going to be an upward price for all.”
The previous generation-long cycles ran from 1870 to 1913 and from the end of World War II to the early 1970s, Haigh said. The third super cycle began around 2000, he said.
Goldman Sachs Group Inc. and Citigroup Inc. forecast the end of the cycle after prices that more than doubled in 10 years spurred expansions at mines, farms and oil fields. The Standard & Poor’s GSCI Spot Index (SPGSCI) of 24 raw materials lost 2 percent this year, while the MSCI All-Country World Index advanced 5.1 percent. Hedge funds cut combined bullish bets across 18 U.S. commodity futures by 58 percent from a 16-month high in September as gold, metals and grains trade in bear markets.
Gold slid 23 percent last quarter, entering a bear market in April. The precious metal traded at $1,221.65 at 3:06 p.m. in Singapore today and has averaged $1,511 this year.
“Prices are going to generally drop down throughout the year,” Haigh said at a media briefing in Singapore today. Producers may increase hedging, he said. “They’ll start selling into the market, which puts more downward pressure on gold prices.”
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