Investors should short gold, one of the best performing assets this year, Goldman Sachs said, as it believes a recent rally triggered by concerns over the health of the global economy has been overdone.
Bullion has gained about 13 percent in 2016 as worries over negative interest rates and their impact on the banking sector sent investors scurrying out of equities and into safe-haven gold.
Concerns over the Chinese economy and fears of a U.S. recession also helped gold post one of its biggest rallies in years. Prices hit a one-year high of $1,260.60 an ounce last week.
But Goldman Sachs said prices will roll back.
“Fears around China, oil and negative interest rates have likely been overstated in the gold price and other financial markets,” Goldman Sachs said in a note dated Monday.
“We are recommending shorting gold through a GSCI-style rolling index,” it said, referring to the S&P GSCI commodity index.
Goldman expects prices to fall to $1,100 in three months and $1,000 in 12 months.
Gold has already given back some of its gains, falling below $1,200 early on Tuesday as equities rebounded.
The U.S. Federal Reserve would hike interest rates further, putting pressure on gold, Goldman said, despite recent speculation the Fed might resort to negative interest rates to stimulate the economy.
Bullion was also likely to see little support from top consumer China, with a large amount of physical demand unlikely, Goldman analysts said in the note.
China has already shown its pessimism with the gold rally, selling the metal after returning from a week-long holiday on Monday, while post-Lunar New Year demand is set to falter.