Even though gold started 2014 on a high note, the end is not going to be as kind for the yellow metal. A stronger greenback — which is currently hovering at its highest level in nearly nine years against a basket of major currencies — a slump in oil prices and a climb in U.S. equities all have tainted the precious metal's splendor and safe haven appeal and are expected to lead gold toward a bearish end.
In the first half of 2014, concerns surrounding the economy and geopolitical tensions boosted gold's safe haven appeal and led to strengthening of prices. In fact, in mid-March, gold attained a six-month high of $1,379 per ounce, stoked by Ukraine worries, fears of a slowdown in China and weak U.S. economic data that drove investors to take refuge in bullion.
Until August, gold prices held their own, remaining on either side of $1,300, dipping at times on positive U.S. economic indicators. However, the bubble soon burst as a stronger US dollar led to weakening of gold prices. Further, gold has been let down by weak demand in its otherwise biggest markets – China and India. Starting September, prices remained steadfastly under the $1300 range and showed a clear downward trend due to a stronger dollar.
Gold resumed its downhill journey in October on a positive jobs report and dour economic reports from the European Union, particularly its leading economy Germany. However, gold found some support in the latter part of October from strong physical buying in India, thanks to the festive and wedding season.
Nevertheless, the tables soon turned in November for gold prices, which fell below the psychological level of $1,200, triggered by the Federal Reserve's announcement that it would end its QE3 bond buying program, coupled with surge in equities, further fall in crude oil price and new stimulus measures by the Bank of Japan. On Nov 6, gold fell to four-and-half-year lows to $1,143 per ounce, on the back of a strong u.s. dollar and a steady climb in the equity market that kept investors away from the safe-haven gold market.
Moreover, an unsuccessful Swiss referendum, which ruled out the suggestion of boosting gold reserves, was the final nail in the coffin for gold. A vote in favor would have meant the bank will have to buy a considerable amount of gold to increase reserves by around 1,500 tons over a period of five years or 300 tons per year, roughly 8% of annual gold demand. This would have had an immediate impact on gold prices.
Ending the Year on a Bearish Note
Gold took a downturn on Dec 17 and has been below $1,200 ever since, following the Fed's decision to remain on track to raise interest rates in 2015, curbing the appeal of gold as a store of value. Benchmarks gained for the fourth straight session as investors continued to cheer Federal Reserve's decision.
