Gold sinking to US$800 in worst-case outlook at Morgan Stanley

[SINGAPORE] 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$1,103 on Thursday.

Gold's fallen out of favor with investors as the Federal Reserve prepares to increase borrowing costs, boosting the dollar. Prices could drop below US$1,000 an ounce, according to Goldman Sachs Group Inc's Jeffrey Currie, while Standard Chartered Plc 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," Morgan Stanley said in the July 22 report, referring to precious metals. The bank's unchanged forecasts have greater downside risk after July's selloff and persistent weakness in China's equity markets, it said.