Has the gold price been manipulated down the last several months and years? Does on the ground supply and demand have any impact on the London Fix published twice daily? Moreover, is a US dollar collapse imminent that would, at least in theory, send the gold price rocketing up past $10,000 per ounce or has gold been behaving exactly as it should be?
Back in the 1980’s the gold price increased in dramatic fashion with the generally accepted reason being real inflation as measured across the broader economy and consumer goods spectrum. Today however, according to Government data, dubious at best, inflation is non-existent with the prospect of deflation a much greater concern for policy makers. Deflation is to be avoided at all costs since the rational decisions around consumption are to buy later since those goods will be cheaper with the net result being an increasingly dramatic economic slowdown as the trend accelerates.
Back to gold though and the question around the real reason it is purchased by investors at all. It is generally espoused by financial experts and advisors that gold really does little except to serve as an insurance measure so no harm in allocating five or ten percent of one’s portfolio to gold, just in case. Looking ahead to 2014, what can we realistically expect for price movements for gold and gold shares?
The relatively recent price spike up to the $2000 vicinity was in all likelihood the follow through of a safe haven demand reaction that was logical given the financial meltdown of 2008 and the accompanying uncertainty created. The central question then for 2014 surrounds that same sentiment and if it does still exist today? On the surface, probably not as economic indicators around the globe suggest that financial stability, while still shaky, is trending in the right direction as the American economy for one starts to show a few signs of life which in turn is bolstering the U.S. dollar, the world’s reserve currency (for now). The rise in the US dollar index by definition will push the price of gold down since it is posted in US dollar terms.
All those analysts convinced that QE had to show up as inflation, which is gold bullish, have thus far at least proven to be way off base. Even now as QE is being slowly wound down it is pretty clear where much of this excess money and debt creation has been inflationary as major stock market indices continue to reach new all time highs while the gold price has been crushed in the background.
Worse yet for the gold bug type investors that thought the best returns lay with gold miners and explorers, a nasty truth had to be faced in light of huge gold price gains for over a decade; gold miners that should have been spewing cash along the way somehow managed to lose sight of sound business practices and have paid dearly with shares priced cheaper than ever. Gold mining investors have been slaughtered and with demographics shifting up in age, previous players are now leaving the sector in search of safe dividend stocks that can produce income in retirement.
2014 will likely see some firming for miners share prices provided the gold price holds the $1,000 level, which could be tested and if it is should serve as the final shake-out and set the table for higher prices all round by year end. The financial wizards and puppet masters have rescued the global economy from the financial abyss and with the gold market so small, it is easy to push the price about on a whim with a few key sell orders when needed. It is my view that should 2014 be uneventful in terms of cataclysmic financial events, gold will probably range perhaps as low as $1,000 up to $1400 while mining shares firm and begin to rise since $1000 gold is likely already priced in.