Gold headed into February on a downward trend and the yellow metal seems to continue its decline towards $1200 per troy ounce. At the time of writing (5pm GMT) just as the London stock markets are closing on $1247.62.
Gold headed into February on a downward trend and the yellow metal seems to continue its decline towards $1200 per troy ounce. AT the time of writing (5pm GMT) just as the London stock markets are closing
Although gold had a mini revival a couple of weeks ago, it was short-lived, so how will gold perform in 2014 and what influencers will be the driver behind gold prices.
The greatest influence on gold prices at the moment is economic data coming from the United States. When the Federal Reserve first announced its intention to taper is assets purchasing in June 2013, precious metals went on a freefall and has not recovered since.
That the Federal Reserve has decided to reduce the amount of bond buying is an indication that the US economy – and indeed the global economy – is getting stronger, which means there is less need for investment banks to trade in gold. The reduction in demand drives prices down.
But 2014 is a long year and the actions of the Federal Reserve could yet play a major role on whether gold continues on a downward spiral or whether it can even out and recover. In order to ensure the US economy continues to grow, in all likelihood the FED will raise inflation targets and peg interest rates for the long-term which will subsequently increase demand for precious metals.
And it is expected that the US economy will continue to grow by one means or another which will appreciate against other leading currencies. Given the US dollar is used as the benchmark for global currencies, the strengthening dollar will encourage spending and investors will turn to equities rather than commodities like gold.
The Asian gold market
In terms of demand for physical gold, the two largest buyers are China and India. In 2013, the Indian government restricted the amount of gold imports into the country by raising the levies which either out-priced consumers or left a shortfall of gold for purchase.
China has been paying huge quantities of gold for several years now and will continue to purchase huge amounts this year. The Central Bank of China has said it will continue to buy gold until it has as much as the US. It is estimated over 2000 tons of the yellow metal was shipped to the Republic last year.
However, China also accrues much of its gold from its own mines which is exclusive to buyers in China and does not affect the prices published by the London Bullion Market Association which is the central metre which global spot prices work from.
The progress of gold in 2014, will mostly depend on market sentiment based on the recovery of the US economy. As the dollar strengthens gold prices weaken which makes 2014 an excellent period to add gold to your investment portfolio for low prices.
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