Gold could sink another 25% to US$800 in worst-case scenario, says Morgan Stanley

Gold's fallen out of favor with investors as the Federal Reserve prepares to increase borrowing costs, boosting the US dollar.
Gold's fallen out of favor with investors as the Federal Reserve prepares to increase borrowing costs, boosting the US dollar. PHOTO: BLOOMBERG

SINGAPORE (BLOOMBERG) - Gold's been mauled this week as commodities sank to a 13-year low. It may get a lot worse, according to Morgan Stanley, which said that under its worst-case scenario bullion may tumble to US$800 an ounce.

To get there requires US policy makers to start raising interest rates, another correction in China's stock markets and a selldown of reserves by central banks, analysts including Tom Price said in a report. The metal is more likely to trade at about US$1,050 an ounce, according to the bank, which left its 2015 forecast unchanged. The price was at US$1,098 on Thursday.

Gold's fallen out of favor with investors as the Federal Reserve prepares to increase borrowing costs, boosting the US dollar. Prices could drop below US$1,000 an ounce, according to Goldman Sachs's's Jeffrey Currie, while Standard Chartered said it will probably extend losses. The rout in bullion helped to drag the Bloomberg Commodity Index to the lowest level since 2002 as crude oil and base metals fell.

"The backdrop for this commodity complex is deteriorating," Price wrote in the July 22 report, referring to precious metals. "Our current unchanged precious-metals price forecasts carry greater downside risk following July's selloff and persistent weakness in China's equity markets."

Gold for immediate delivery sank to US$1,086.18 an ounce on Monday, the lowest level since March 2010, according to Bloomberg generic pricing, and it last traded below US$800 in 2008. Morgan Stanley's 2015 forecast is US$1,190.