Gold Outlook for 2014

Gold Outlook for 2014

Submitted by adil on Mon, 01/06/2014 - 18:08

Since last three years, when the great depression of this generation began, the commodities market has been facing a dampened situation except gold. The rise of gold during this period is attributable to record US interest rate mayhem, weakening dollar and generally sluggish world output particularly of China.
 

Since last three years, when the great depression of this generation began, the commodities market has been facing a dampened situation except gold. The rise of gold during this period is attributable to record US interest rate mayhem, weakening dollar and generally sluggish world output particularly of China. Traders had preferred to secure their wealth's value through gold until the recession winds stop blowing.

Owing to these above mentioned factors gold recorded spectacular gains. These gains were brought about after significant volatility in gold markets. However, the year 2013 is at an end and for many traders the most important question is how will gold react in 2014.

According to most observers, the gold is being viewed as the least favourite commodity to trade in 2014. The exchange traded funds have restricted investing in gold related positions and as such their holdings in gold have been reduced by 30%. This puts the gold prices in a bearish backdrop, at least firmly in the short-term. The next question that traders are facing is wether they should sell or buy at current levels? The answer to this question comes as a strong ‘sell' from most forecasters. Some of the most optimistic forecasters anticipate that gold will average $1250 in 2014, a significant drop from current levels. It should be noted here that there are other forecasters who anticipate the gold average to be much lower than $1250. In fact, in Q1 of 2014, observers expect the price to bottom at $1150.

After achieving its bottom, the gold market is expected to shrug off tapering affect. However, the US interest outlook still remains flat. That said, we cannot ignore that gold has behaved sensitively to US bond markets, particularly the 10 year yield which is rising. This rise in yield is expected to slow down in second half of 2014, and then we can expect the market move towards a physical bet scenario where Chinese investors will be looking to buy the dip. The unwinding of Fed Stimulus will create headwinds in the metals market as well in first quarter leading to significant volatility during that period, with price moving between $20-$30 ranges. There will be short ins and outs, followed by longer time positions in second quarter.

On the other hand the Chinese economic outlook is positive. Historically, the second year of a new Chinese government is quite positive in terms of policy and government activity; 2014 is the second year of new Chinese administration. Growth in China, where urbanization is in full force, is likely to push prices of other commodities, like copper, up by at least 2-3%.

Owing to all these developments, gold is least favoured commodity for 2014. Global economics stability driven by Chinese growth, anticipated strengthening of dollar and rising interest yields will put significant pressures on the gold's price throughout 2014. Hence, the forecast trend will be on the downside with good amount of volatility in the first six months of the year.