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Gold - What does 2014 have in store?

Although gold lost almost 30% of its value last year, the rebound during the first few months of 2014 has left investors uncertain...

Uncertain as to whether the precious metal still has further to run.

Mabyanine Phiri, expert trader at ACM Gold, said that for the rest of 2014, gold (trading at $1,378.65 an ounce on 17 March 2014) is likely to run its course between $1,080 and $1,400, with more inclination on the bearish side.

"If we analyse the price charts of gold, it is clear that the yellow metal is going through a correction, which might end at around $1,100. Hence, the best way forward for investors is to trade the daily and weekly volatility of gold in order to make short-term profits. For those who are more interested in a long term physical investment, we would suggest waiting for incoming strong support levels at around the $1,050-$1,100-$1,180 range," said Phiri.

US economy

"There are a number of technical and fundamental reasons to this analysis. The monetary policies of the US Federal Reserve, along with the performance of the US economy, are major determinants when trying to figure out trends in the movement of gold. Currently the dollar is going through the 'taper', which helps to boost the value of the dollar, while all US dollar denominated currencies and commodities, including gold, take a toll."

This follows Bernanke's Quantitative Easing (QE) programmes, which were initiated to give the US economy a much needed boost.

"When policy makers felt that the US economy was back on track they decided to start the tapering. This means that future economic data such as US employment figures will be crucial in determining whether the world's biggest economy is really back on its feet. If that is the case, we will increasingly see investors turning to the dollar for investment purposes, which in turn will drive down the demand and price of gold," explained Phiri.

Emerging powerhouses

Adding to this is the physical demand mostly from emerging powerhouses such as China and India. China's demand for physical gold is critical and has a strong impact on gold prices, often helping to support the gold price and give it an intrinsic value that cannot be found in most financial instruments.

"We predict increasing demand for physical gold in 2014, albeit only to a certain extent, which should help to stabilise the gold price. Even though we believe gold has been over-valued due to its safe haven nature, we would not advise against investing in gold."

He notes that while the dollar and other currencies are not backed by anything tangible, gold has an intrinsic value that will ensure it is never worthless. "In addition to its intrinsic value, gold is able to provide investors with a strong hedge against currency depreciation, which is why it is always a good idea to have some percentage of a portfolio backed with gold," concluded Phiri.


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