Summers withdrew his nomination to lead the Fed, before a two-day policy meeting starting tomorrow at which the central bank is forecast to reduce monthly bond purchases, known as quantitative easing, that have boosted demand for gold as a hedge against inflation. Summers would tighten Fed policy more than Yellen, who was his main rival to replace Chairman Ben S. Bernanke, according to a Bloomberg Global Poll of investors, analysts and traders last week.
The Fed will decide to cut monthly purchases of Treasuries to $35 billion from $45 billion and keep mortgage-bond buying at $40 billion at its meeting starting Sept. 17, according to the median estimate of 34 economists surveyed by Bloomberg Sept. 6.
Bullion rose 70% from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system by purchasing debt, increasing concern that inflation would accelerate. In fact, U.S. consumer prices grew at a 2% rate in July, compared with a 10-year average of 2.4%.
Gold may drop below $1,000 for the first time since October 2009 as the Fed withdraws stimulus and the economy improves, Jeffrey Currie, Goldman’s head of commodities research, said in a Bloomberg Television interview Sept. 13. Currie issued a sell recommendation for bullion on April 10, before prices plunged 13% in a two-session slump ended April 15 that sent the metal into a bear market.
Societe Generale SA and ABN Amro Group NV are also predicting more declines after prices fell 31% from a record $1,923.70 reached in September 2011.
Gold may stabilize near $1,200 in the longer term because of production costs, Goldman’s Currie said. Many producers would be forced to shutter output if prices stayed below that level for long, Alberto Calderon, adviser to the chief executive officer at BHP Billiton Ltd. and a former executive of the company, said in a Bloomberg Television interview Sept. 13. BHP is the world’s largest mining company.
Prices jumped 6.3% in August on concern that military action against Syria would disrupt oil supplies from the Middle East, raising energy costs and stoking inflation. The U.S. remains “prepared to act” if diplomacy fails to persuade Syrian President Bashar al-Assad to give up his chemical arms stockpile, President Barack Obama said.
“There’s still very high likelihood of geopolitical risks as things in the Middle East are not getting better, and there’s a strong chance of a military conflict,” said Jeff Sica, who helps oversee more than $1 billion as the president of Sica Wealth Management in Morristown, New Jersey. “As long as physical demand for gold doesn’t trail off dramatically, we’ll have price stability.”
Gold imports by India, the biggest buyer, will probably rebound, helping to keep bullion demand from Asia strong, Standard Chartered Plc said in report Sept. 12. Billionaire hedge-fund manager John Paulson’s PFR Gold Fund rose 12% in August, according to a person familiar with the matter who asked not to be identified because the information is private. The gain pares the $400 million fund’s loss this year to 55%.