Gold has bucked the trend in 2014. Rather than plummet into decline as most analysts predicted, gold has surprisingly rallied and boasts in highest value in four months.
Following positive US technical data in the third quarter of 2013, market speculators forecast the global economy to strengthen. However, a chain of negative events has dampened market sentiment for equities and traders are piling in gold bullion as a safety net.
The fourth quarter returns in the US were disappointing. Although a 0.7% improvement was made, job data was far lower than had been anticipated, sparking fears the global economy was not growing as strongly as initially believed.
US Fed ease Quantitative Easing
Despite the US economy – the world’s largest – underachieving, the US Federal Reserve decided it was time to start pulling back on their stimulus spending. Finance ministers in emerging economies have warned an early evacuation of QE in the States could devalue their currencies and subsequently slow down the growth of the global economy.
When the FED changed hands in February, new chairwoman Janet Yellen confirmed the central bank would continue trimming its stimulus budget, weakening the dollar and again had traders ducking under the cover of precious metals.
A fall in precious metal prices is looking increasingly unlikely in the current climate. The conflict in the Crimea Peninsula between Ukraine and Russia is keep tensions tight and with the world’s financial ministers still yet to thrash out a satisfactory plan to sustain the global economy, investors will not risk moving away from gold.
The rise of gold
Investors expected 2014 to be a year for long-term investments in gold, but the current climate presents opportunities for investors to earn some short-term gains. This type of transaction however requires a substantial sum of money and the time to keep your eye on the market and world politics.
Technical indicators signal up to a three month window for investors to make a profit on gold. The time allowance depends greatly on events in Eastern Europe. Until a satisfactory resolution is reached with Vladimir Putin, traders will not risk pulling out of gold.
Russia are under a lot of pressure however, and the eyes of the world is watching. Putin is being heavily criticised of playing the same cards as the Communists government of 1956 and 1968. If Putin wants to prove that the politics in his country are progressing he should not use force – despite his threats.
If you do intend to buy gold in this window, this is the event you need to keep a careful eye on. If Russia do pull out, gold prices may drop quickly. The worst outcome of course would be a military strike from either side escalating the crisis into an even worse state of affairs than it already is – in which case gold will probably break all time highs.