Gold Outlook in 2014

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A lot of investors that are wary of placing too much of their money in soft assets, such as stocks, bonds and other derivatives, after the Financial crisis of 2008 have turned to investing in precious metals such as gold in order to diversify their asset portfolios.  Analysts and experts that deal with precious metals exchanges have predicted that the price of gold is poised to go on a roller coast ride in the coming calendar year of 2014.  While they initially predicted that gold would continue its typical rise or at least remain at a steady level in the coming year, these predictions have become less popular recently as political and fiscal decisions made in Washington have darkened the outlook for gold investing in 2014.  However, it still appears to be relatively positive, as China continues to lead the way in terms of investing.  This is despite the fact that other emerging economies such as India (which has traditionally been the largest consumer of gold) appear to be reducing their demand for gold.  This coincides with India’s significantly increased demand for silver, which is due a variety of factors included silver’s tie to industrial production and a growing middle class and rural Indian investor interest in various types of silver investments.

Some predict that there might be a moderate or even a significant decline in the spot price of gold in the coming calendar year.  This is due to a downgrading of the bullion market of 15% by many of the foremost investment institutions.  Analysts who specialize in risk management believe that the predictions of a decline in the spot price of gold are due to the downside risks that exist for all of the precious metal commodities, with gold being seen as the precious metal that is most vulnerable to a decrease in prices in the bullion market.  If these predictions turn out to be prophetic, then the spot price of gold could potentially decrease to $1057 per troy ounce, which would be the lowest price for gold since 2010.

While the United States economy as a whole is projected to improve in the coming year, gold appears to be on a downward slide due to the fact that the United States Federal Reserve has just announced plans to begin tapering and reducing their monthly $85 billion bond buying program that was instituted over a year ago as part of a quantitative easing policy.  All of the cheap money that has been available has driven up the price of gold to an unsustainable height, especially considering the inevitable decrease in demand by domestic investors once the Federal Reserve begins to taper their monthly bond purchases in earnest.  To put succinctly, as the Federal Reserve begins to reduce the monetary stimulus, gold prices will in all likelihood begin to drop.

This projected drop in the intra-day spot gold price on the London exchange will have a seismic impact on markets across the globe.  Investment in such places as exchange traded funds, options, futures, mining stocks and mutual funds will most likely see a decrease in price beginning in the second quarter of 2014.  While the price of gold securities is projected to decrease, investments in physical gold are still projected to continue at the same pace.

Another thing that may cause a change in the gold price is the possibility of a small increase in the federal funds rate on 10-year United States treasury bonds.  A rise in the federal funds rate combined with the imminent tapering of bond purchases has the potential to trigger a lot of chaos in the secondary market for gold speculation.  One potential result is that exchange traded fund contracts could see a greater increase in demand than most investors are currently preparing for.