When looking at economic forecasting and predictions for the New Year, Gold plays and important part in shaping up the overall view. Whether you trade Gold or not, it provides a good indication of the global market and sentiment toward it.
The traditional view
Gold is traditionally seen as a safe haven investment, particularly during times of crisis. Equally, gold is often seen as an inflation hedge, during times of pricing pressure. Think about an act of terrorism, or jump in inflation and you can expect to see an immediate jump in the price.
However, we are in a current environment where there is little if any inflationary pressures, gold is not finding its traditional support. Equally, we have not been exposed to any major events on the geopolitical front, which might be expected to drive investors into the yellow metal.
It’s all about yield…
2013 has been a year where the search for yield has been front and center, in terms of investment objectives. With cash offering practically zero return, investors have sought yield assets – certainly in the early part of the year – and this in part has been a factor in driving up renown higher yield sectors, such as the Australian Banks etc.
By contrast, holding gold offers no actual yield, comes with substantial holding costs and only offers a return should prices rise. In today’s world of derivatives, this lack of flexibility and leverage is not finding friends and hence a further reason for gold prices to be languishing.
Our Gold Price Forecast 2014
Against this backdrop and in line with our view on the US economy, there are plenty of signs of positivity. With 203,000 new jobs created, based on the latest employment data, being a bullish sign. Elsewhere in the world, things are also looking more bullish, making it tougher to justify long gold positions, versus risk on positions where positions may be easier to justify, such as long equities, where there is already, positive momentum.
With this bearish sentiment, going with the trend tends to be the lower risk view.
Against this backdrop, a test of $1180 is not out of the question and a breach of this level will likely trigger further and technically driven selling. This being so, then levels could be considerably lower.
And in terms of upside?
However if we see Gold hold onto this support level, the key technical levels to the upside, as we see them, will likely be 1210 and beyond this, 1360 in the medium term. If these are taken out, $1485 is a possibility. However, that will require a renewed global market shock, equity market sell down or a substantially stronger level of inflation. The latter two, we see as unlikely, leaving a global shock as the main risk or driver for a move upwards.
Our expectation is around the $1100 level for the next few months, lower than present levels – and will look at reviewing around Easter, following the market’s initial reaction to Janet Yellen’s appointment at the US Federal Reserve. Equally, we will of course revisit this in light of a dramatic change in global economic conditions.
Outrageous Market Predictions 2014
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