Though not as dramatic as 2013’s implosion, barring a miracle within the next couple of weeks, 2014 will be marked as another bearish year for gold.
By November, gold had fallen to a multi-year low of $1,141.30 per ounce, and hasn’t made any meaningful bullish progress in the meantime.
Could the tide finally turn for gold prices in the coming year, though? Can investors buy gold heading into 2015 with any real hope of making any money on the precious metal? As it turns out, some of the key factors that drive gold prices are modestly favoring the metal again.
Gold Prices Twist and Turn in 2014
Just as a refresher, the gold price trend didn’t start out on the wrong foot this year. After 2013’s close of $1,206.80 per ounce, gold made a beeline for $1,391.91, largely fueled by the Ukraine crisis, and boosted by China’s renewed fervor for the metal.
It all began to unravel again on March 17, however, once it became clear the Ukraine unrest was simply going to fade away and then-relatively-new Fed Chairwoman Janet Yellen began her rising-interest-rate rhetoric.
The backdrop of higher interest rates and then the eventual rally in the value of the U.S. dollar spurred by stimulus chatter in Europe (and the yen’s pullback) began in August, putting sustained downward pressure on gold prices that may well still be in place.
Oh, and not only did rampant inflation not rear its head at any point in 2014, it continues to fade.
After peaking at a palatable 2.1% in May, the annualized U.S. inflation rate has fallen back to a mere 1.3% as of November. Given how investors largely hold gold as a hedge against inflation — and there’s been little inflation in a long time — the perceived need for gold has had even more reason to fade.
2015 Gold Price Outlook
So have any of these bearish gold price factors switched gears? Some have, and others are getting close.
For starters, though it’s yet to be seen, modest inflation may be looming large.
While he wasn’t speaking for all the Federal Reserve’s governors, in a speech delivered just at the beginning of this month, Federal Reserve Bank of New York and vice-chairman of the Federal Open Market Committee William C. Dudley remarked:
“I expect inflation will begin to move back towards our 2 percent objective in 2015. As the economy expands and the labor market continues to tighten, resource slack should decline and this should gradually exert some upward pressure on prices. Also, despite some softness in market-based measures of inflation compensation, inflation expectations still seem well-anchored and this should also work to pull inflation gradually higher.”
And, though Yellen hasn’t been quite as explicit with her inflation concerns of late, there’s been little veiling of her aim to start raising interest rates sometime in mid-2015 — primarily to keep impending inflationary pressures at bay.
At the same time, though it would be a bit of a stretch to say demand is soaring again, BullionVault’s Gold Investor Index (a measure of net-buying of gold) as of November seems to have stabilized and even tested higher highs and higher lows since hitting a multi-year low in June — even though the gold price trend remained negative for that same period. If net-buying is a prerequisite for a rebound in gold prices, it’s materializing, albeit slowly.
And last but not least, while the U.S. dollar has been soaring and it seems like it might never quit rallying, the global currency market has a knack for rebalancing things and upending the sawbuck with little to no notice.
The chart of the U.S. Dollar Index tells the tale. The rally from less than 80 in July to a reading of near 90 earlier this month is nothing less than stunning. One only has to look back a few years to see not only that the 90 area is a big technical ceiling, but how quickly sharp reversals can take shape.
Bottom Line for Investors Who Want to Buy Gold
Realistically, assuming no enormous disruptions to the global or domestic economy, 2015 should be a good — but not great — for gold prices.
Gold price targets are a dime a dozen, and only a handful of observers end up being right. But, in the interest of establishing some sort of trading framework, look for a headwind at $1,300 where a resistance line (blue) that tags the last three major highs can be found. If that ceiling should be broken (which is likely), a move as high as $1,435 per ounce is plausible. That’s where gold prices peaked in late-2013, after the bulk of the breakdown had been suffered in the first half of 2013. Though not plotted on our gold price chart, the July-2013 peak at $1,435 is also a key Fibonacci retracement level.
That being said, gold prices could run out of gas at any point between the current price of $1,194 and $1,435, but again, 2015 favors some sort of gain for the precious metal.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.