More Gains Likely As Prices Climb Over $1,300
Gold bulls have anxiously been waiting for gold to rise from the ashes, and now might finally be the time. The controversial metal lost 28% of its value in 2013, tumbling from above $1,800 in 2011 and dipping below $1,200 in December 2013. But the long wait may be over. The gold price closed at $1,329 on Monday which was its highest in almost four months. Gold investors are positioned to benefit from new market trends in 2014 that are likely to bring a change in fortunes following a dreadful past 12 months.
Short-term Negatives Have Run Their Course
The long-term projection for gold has always been positive. Growing wealth in places such as China and India has contributed to increased consumer demand for the metal, and is likely to continue for years to come. In spite of this, gold suffered from a bout of overenthusiasm in recent years as Western investors jumped on the bandwagon. The surge in popularity elevated the gold price to record highs in 2011, but this proved to be an ephemeral culmination after years of increasing returns. Consequently, a short-term period of price correction was virtually inevitable considering the metal’s notable upward performance.
The key driver of the downward trend in the gold price over the past two years has been selling by Western investors who had parked their money in exchange-traded funds (ETFs). Gold's fall from grace led to holdings of gold ETFs to decrease as other investment options, such as shares, prospered. But the trends of 2013 seem to have reversed. Shares stumbled in January 2014 while gold ETFs saw a considerable inflow of funds.This turnaround may indicate positive signs for the gold market.
Long-term Positives Gaining Further Impetus
The price of gold underperformed in 2013, despite rising demand in Asia. Though rather than showing signs of waning after a bearish year, gold’s attractiveness to Asian consumers is continuing to grow. China consumed a record amount of the metal in 2013 with an increase of 41% from the year prior, making it the largest consumer of gold in the world.
Likewise, the appetite for gold in China is likely to grow at an even faster rate as economic uncertainty remains a threat. Problems with the murky domestic financial sector are prompting Chinese investors to increase their holdings of more secure investments, such as gold.
The news from India is also encouraging. India, which had been the top destination for gold imports, was forced to set restrictions on the amount of gold entering the country as a result of excessive imports that were damaging the country’s finances. However, the Indian government has recently made progress in sorting out the imbalances in the economy that were causing the issues. This will likely provide an opportunity to ease the curbs on gold imports in the near future, and may help support the rising prices.
The market upswings in 2014 have been warmly received and seem to have prompted investors to take a fresh look at gold. There is a renewed sense of hope that the selloff is nearing an end, and support for the metal has pushed prices over the $1,300 mark.
Investors are now looking for reasons to buy rather than reasons to sell. Promising news on the developments in Asia, as well as reports of China stockpiling gold, may continue to drive gold prices up. A string of favorable gains has the potential to build on its own momentum, which may allow gold to recover more lost ground in the coming months.