Following a 28 per cent slump in gold prices last year, is 2014 a time when the precious metal will provide significant returns to investors?
According to Jeff Reeves, editor of financial news site InvestorPlace.com, market conditions are aligning in such a way that gold could become an increasingly attractive option over the next few months.
In an article for the Wall Street Journal, Mr Reeves said there has been a three-year downward trend in gold that has spooked investors. With sentiment at an all-time low, many people are failing to see the upside potential of the yellow metal.
“As the saying goes, the time to buy is when blood is in the streets – and after a beating like this and such derision for investors, it is hard to imagine how the sentiment on gold could get much worse,” he explained.
“A sweetener is that behind the scenes, technical analysts are starting to point to the potential of a swing in sentiment on commodities writ large, and gold in particular.”
Mr Reeves added that while the rally in prices of the last few months could be a “fake out”,buying gold could gain momentum over the summer months as more people consider it an astute investment.
Gold as a safe haven
Gold’s value as a safe haven during economic and political turmoil is well known – and it is this characteristic that Mr Reeves feels could now be important.
He argued that there is significant unrest in all corners of the globe at the moment, including Pro-Russia separatists clashing with Ukrainian troops, continued problems in Syria and the US involvement in the Nigerian schoolgirl kidnappings. Problems in Thailand and Libya are also evident, as well as ongoing issues in the Middle East.
“When you can’t trust the currencies of governments in flux and when it’s not safe to invest in tumultuous emerging markets, gold is a logical place to stash cash,” Mr Reeves said.
“And given the fact that few of these geopolitical issues are near a resolution, the buying pressure for gold should persist for some time.”
Gold ‘on the bounce’
Since the beginning of the year, gold has gained 6 per cent in value, which is double the returns the S&P 500 index has achieved over the same period.
Mr Reeves noted that while it is not clear whether this is a dead cat bounce or the beginning of a significant rally, his money is on the latter.
“I think a swing trade chasing 10 per cent to 15 per cent upside – with a $1,470 (per ounce) target at the very high end – is reasonable, even if gold could very well finish the year right where it started.”
Are you considering buying gold in the current market? The World Gold Council recently revealed investment demand remained roughly the same during the first quarter of 2014 compared with the same period last year.
The organisation argued that this reflects a return to the long-term average, clearly showing the fundamental indicators underpinning gold are still strong.
