Gold falls to pare three-week rally as Goldman cuts forecasts

[NEW YORK] Gold futures fell, paring gains from a three-week rally, as Goldman Sachs Group said low inflation and higher US interest rates will drag down prices later in 2015.

Goldman pegged the metal at an average US$1,089 an ounce for 2016 and US$1,050 in 2017, both down from US$1,200 forecasts. Gold will be supported at current levels for the next few months because of weaker-than-expected US economic data and more stimulus from the European Central Bank, the New York-based bank said Friday in a report.

"We continue to expect that gold prices will decline," analysts including Max Layton wrote. "Our confidence in lower gold prices for longer has increased on the back of lower expected inflation in the coming years." Gold futures for February delivery declined 0.6 per cent to settle at US$1,292.60 at 1:52 p.m. on the Comex in New York. On Thursday, the price reached US$1,307.80, the highest for a most- active contract since Aug 15.

The Stoxx Europe 600 Index rose on Friday to the highest since December 2007, and the euro pared declines against the dollar, eroding the appeal of gold as an alternative asset.

This month, gold has jumped 9.2 per cent as stagnating economies challenged policy makers to find new ways to buoy growth. ECB President Mario Draghi pledged to buy 60 billion euros (US$67 billion) of debt a month through September next year.

Silver futures for March delivery fell 0.3 per cent to US$18.30 an ounce. This year, the price has jumped 17 per cent, the most among 22 raw materials in the Bloomberg Commodity Index.

Gold and silver posted the third straight weekly advances, the longest rallies since mid-July.

On the New York Mercantile Exchange, platinum futures for April delivery fell 1.3 per cent to US$1,268.70 an ounce, the biggest drop since Dec 29.

Palladium futures for March delivery rose 0.2 per cent to US$774.10 an ounce. This week, the price climbed 2.6 per cent, the most in two months.

BLOOMBERG