How will the price of gold develop in 2014 and in the following years? [Read on as] we try a look into the future. Words: 2600
So writes Christian Haese (www.trustablegold.com) in edited excerpts from his original article* entitled Gold Price 2014 – How will the price of gold develop in the coming years?.
This post is presented compliments of Lorimer Wilson, editor of www.munKNEE.com(Your Key to Making Money!), www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and the FREE Intelligence Reportnewsletter (see samplehere – registerhere). The post may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. You can also “Follow the munKNEE” daily posts viaTwitterorFacebook. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Haese goes on to say in further edited excerpts:
The Price of Gold is Determined by Supply and Demand
As it is the case with any other freely tradable good, the price of gold is determined by supply and demand…In case of excess demand, the price of gold rises until demand matches supply. Conversely, in case of a surplus of gold, the price of gold goes down until the entire supply is in demand.
Demand for Gold – the Four Pillars
The demand for gold comes from four areas:
Source: World Gold Council
Development of Individual Demand Factors
Over the five years from 2007 to 2011:
the industrial demand for gold for technological applications has remained nearly constant….
the demand for gold jewelry – traditionally the most important item of the total demand for gold – has declined by around 18%….
the investment demand increased – based on the demand for gold in metric tonnes – by almost 130% from 2007 to 2011.
Central banks, who for years on balance sold more gold than they bought, have become net buyers since 2010. In 2011, the purchases by the central banks were almost as high as the total gold demand from the technology sector.
Source: World Gold Council
Future Demand Expectations By Area
It is very difficult to forecast the demand for gold for 2014 and the coming years.
Jewelry Demand: The demand for gold jewelry comes [primarily] from Asian countries, especially India and China. The increase in jewelery demand should continue given the positive economic development of these countries and increasing prosperity.
Investment Demand: Investment demand, however, is developing in the opposite direction. In Western countries, gold is often seen as a store of value or as an insurance protection against crises. In times of economic uncertainty or even acute crises, demand for gold as an investment tends to increase. In recent years, gold…became more and more easily accessible for retail investors through the advent of new financial products on gold, such as funds, as well as non-regulated products such as vaulted gold. These new products facilitate an increasing private demand for gold as an investment.
Central Banks: There are several scenarios with regard to the demand for gold from central banks.
On the one hand, the central banks of emerging market economies, in particular, could adjust their gold holdings further to the level of many developed countries.
On the other hand, countries with a precarious debt situation may be forced to sell gold holdings in order to reduce their debt.
Supply of gold – mining and recycling
The supply of gold generally consists of the amount of gold mined annually and the amount of recycled scrap gold coming back into the gold market.
Source: World Gold Council
The current supply of gold is about one third higher than the supply of gold was 10 years ago.
Recycling: Compared to 2002, the annual quantity of gold coming back into the market by way of recycling in 2011 almost doubled because the rising price level made sales of scrap gold more attractive. The amount of recycled gold is beginning to decrease despite the high price of gold, [however, probably because of] the fact that a large share of scrap gold holdings were already sold over the last [few] years.
Mining: Actual mine production has increased only about 15% [since 2002 but only] slightly in 2011 compared to 2010…[offset by the significant reduction in] so-called “de-hedging” [by] mining companies…[which has] resulted in an increased supply of gold available in the market (i.e, the mining companies themselves bought less gold to close open hedging positions).
The mining of gold is getting less productive and more expensive due to less rich deposits, and for the next few years no significant increase of mining supply is expected.
Thus, the supply of gold will remain rather constant in 2013 and 2014 and from a supply side perspective no negative pressure on the gold price is to be expected.
Momentum and Fluctuations in the Gold Market
The total amount of gold ever mined worldwide currently has a value of about 9,000 billion U.S. dollars. Daily, only a very small part of this quantity is traded in markets. Therefore, sales or purchases of large quantities of gold hitting the market can affect the price greatly.
The emergence of new investment products and the activities of financial investors have made the gold price more susceptible to price fluctuations.
The volatility of the gold price has increased significantly and there is no change in sight for 2014 and the next few years.
Trends and Possible Scenarios for the Gold Price
Due to the many supply and demand factors and their interdependencies, a reliable forecast of the future price of gold in 2013, 2014 and beyond is very difficult. Below, we discuss possible scenarios and trends as well as their potential impacts on the gold price.
1. Uncertainty and financial crises
The financial crisis has led to a sharp increase in demand from private investors and central banks. If the uncertainty persists or perhaps even escalates again, this could drive the gold price further up, for example in case of a possible euro-exit of Greece or an escalation of debt problems in other countries like the United States or Japan.
2. Inflation and depreciation of money
One argument of Western investors in favor of the purchase of gold is the fear of high inflation and thus a loss in value of money. In the wake of the debt crisis and the measures to ease monetary policy, this may be a legitimate concern, however, in recent years inflation has been low and some experts rather expect deflation than inflation in the short term.
In emerging economies, such as China or India, however, the situation is different: in those countries, the respective inflation rates are high by our standards – sometimes even in the high single or low double digits. This is not due to the debt crisis but due to the high economic growth in these countries.
Unlike in the developed economies, in China and India a strong investment (and jewelry) demand for gold is expected in case of a further positive economic development.
3. Normalization of the situation
Accordingly, in case of an economic recovery in the West – if there is a solution to the debt crisis – there would be opposing effects on the gold price. The very high investment demand would decline in the West and we could probably not expect to see a compensation by an increase in demand for gold jewelry.
In emerging countries such as China, however, a global economic recovery should lead to further growth and thus greater demand for both gold jewelry and gold investments (which are used in these countries to hedge against local inflation).
4. War and political crises
A geopolitical crisis or a war – for example, a military strike by Israel against Iranian nuclear facilities – would probably quickly drive up the price of oil as well as the price of gold. Let’s hope that does not happen….
5. Demand from private investors
According to a study conducted by the scientists Claude B. Erb and Campbell R. Harvey, the value of all mined gold currently represents around 9% of the global wealth in stocks and bonds. However, if only investment gold is considered, the rate is just 2%. When looking at the investment behavior of individual investors, one notices that only a small number of investors is actually really invested in gold. If gold should continue to establish itself in the portfolios and assets held by private investors, this could lead to a large additional demand and consequently to a sharp rise in the gold price.
This trend could be facilitated by further new gold investment products which make an investment in (physical) gold easy for private investors. Such products include, for example, vaulted gold.
6. Behavior by the central banks
Predictions regarding the future demand from central banks are also difficult to make. [On one hand,] in the wake of the debt crisis, countries such as Portugal could sell gold held by them, which could potentially result in a decrease of the gold price. On the other hand, a large part of the official sector demand in recent years came from central banks of (former) developing countries such as China. China only holds about 2% of their reserves in gold compared to Western countries such as Germany and the United States who hold more than 70% of their reserves in gold.
The amount of gold held by China has more than doubled – measured in metric tonnes – since 2000 and if, for example, China were to diversify its foreign exchange reserves further and invest a portion of them in gold, this could lead to a huge demand and could have a positive impact on the gold price.
In the so-called “Washington Agreement on Gold”, the central banks of many countries with large gold reserves and the Bank for International Settlement (BIS) and the IMF have agreed to sell only a specific quantity of gold annually. In 2009, the agreement was extended until the year 2014. Therefore, no negative price pressure is expected from this side in the short term but the mid-term outlook beyond 2014 is unclear.
Gold Price Predictions by Analysts
The current analyst predictions regarding the price of gold for the years 2013 and 2014 differ, but seem to be mostly positive.
Morgan Stanley’s Hussein Allidina, assumes…that gold will be the most attractive commodity in 2013, and expects…an average price of $1,853/ozt…. He justifies this with:
a weaker U.S. dollar due to the low interest rate policy,
the purchase of mortgage-backed securities by the Federal Reserve,
the unlimited purchase of government bonds program of the ECB,
gold purchases by central banks,
the high demand for gold ETFs and
the recovery of gold demand in India.
Goldman Sachs, however, has recently reduced its forecasts for 2014 and now forecasts a gold price of $1,750/ozt.. The bank considers it likely that the current gold bull market will end in 2013. It argues that the gradual rise in real interest rates due to the improved growth prospects for the U.S. economy is likely to more than compensate the impact of further monetary easing by the Fed.
Deutsche Bank has raised its forecast for the price of gold for the years 2013 and 2014, justifying this with the unlimited purchase program of the U.S. central bank. Against this background, a rise in the gold price is only a matter of time. For 2013 the bank predicts a gold price of $2,113 and $2,000/ozt. for 2014.
Bank of America Merrill Lynch forecasts a gold price of $2,400/ozt. for the end of 2014. Key price drivers are expected to be interventions by the Fed and the European Central Bank. According to their analyst MacNeill Curry, the gold price could ultimately reach $3,000 to $5,000ozt..
HSBC analysts James Steel and Howard Wen predict an average price of gold of $1,850/ozt. for 2013 and an average price of $1,775/ozt. in 2014.
Conclusion for the gold price in 2014 and beyond
Like other asset classes, a gold investment is associated with risks. The price of gold can fluctuate strongly in the short term and also in the long term. Over very long periods of time gold does show a high and – from our perspective – unique stability or wealth preservation. However, such periods can be too long for individual investors.
On the other hand, for any risk averse investor an addition of gold contributes to the diversification of his/her investment portfolio. Due to the low correlation of gold with other asset classes, a gold investment reduces the (price) risk for the investor and therefore can reduce potential losses.
As is true with other forecasts, the future price of gold can not be predicted reliably. The factors influencing the price of gold are varied and there are many interdependencies. In the event of a further escalation of the financial crisis or the emergence of new crises, the price of gold may continue to rise strongly as a result of the supposed function of gold as a “safe haven”. This might also be the case if the current uncertainties continue: generally speaking, uncertainty seems to be a good breeding ground for a rising gold price.
If, however, the current “bull market” (recovery phase) stops one day, for example, as part of a solution to the global financial problems, the gold price could also fall again – potentially over many years or even decades, until the next upturn happens.
Professional and courageous investors can speculate on a specific gold price development. For safety-oriented investors it is recommended – also in light of the lack of a regular income or interest from a gold investment – to view gold…[as] a form of insurance.Unlike possibly individual stocks, bonds and other securities, gold will never lose its value completely. Conservative investors should invest only a portion of their total assets in gold.
As with all investments, investors have to consider cost and safety aspects when choosing a specific form of gold investments. The cost of buying and the annual costs of a gold investment can greatly affect the rate of return and thus have a big impact on the final value of the investment at the time of sale.
With regard to the safety of an investment, investors should not only take the possible price of gold into consideration but also potential risks that may be limited to certain products or suppliers. On our website, we compare prices and safety aspects of various vaulted gold products on the basis of transparent criteria.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
I am not predicting a future price of gold or the date that gold will trade at $4,000, but I am making a projection based on rational analysis that indicates a likely time period for gold to trade at $4,000 per troy ounce. Yes, $4,000 gold is completely plausible if you assume the following:
Since the Financial Crisis erupted in 2007, the US Federal Reserve has engaged in dozens of interventions/ bailouts to try and prop up the financial system…and the amount of money printed is absolutely staggering. As a result of this, inflation hedges, particularly Gold, have been soaring…[but] for gold, for example, to hit a new all time high adjusted for inflation, it would have to clear at least $2,193 per ounce. If you go by 1970 dollars (when gold started its last bull market) it would have to hit $4,666 per ounce. Words: 581
We now have a really strong probability that the correction which started at $1913 on 23 August 2011 has been completed both in terms of Elliott waves and also in terms of time elapsed. If this is correct, the gold price should soon be expressing itself in violent upside action as it moves into the third of third wave which is still targeted to reach $4,500. [Let me explain in detail (with charts) how and why my most recent analyses confirm my earlier target of $4,500.] Words: 1085
According to my 2000 calculations, if interest rates and inflation stay constant over the next 2 years, we could expect to see (with 95.2% certainty) a parabolic peak price for gold of $4,380 per troy ounce by then! Let me explain what assumptions I made and the methods I undertook to arrive at that number and you can decide just how realistic it is. Words: 740
The closing of the gold window back in August 1971 has led governments worldwide to create endless amounts of worthless paper money and the resulting credit bubble has created a world debt exposure of over US$ 1 quadrillion (including derivatives). It has also created perceived wealth for big parts of the world’s population – a wealth which is only backed by promises to pay and by grossly inflated assets. Few people realise that this wealth is totally illusory and will implode considerably faster than the time it took to create it. [Let me explain.] Words: 890
My Fractal Gold chart work is a direct comparison of Gold, today, to the late 70’s Gold Parabola. Thus, “timing” is taken directly from the late 70’s cycle, with price targets created from a combination of the late 70’s Gold price and different technical analysis techniques. We developed a price target back in 2006/ 2007 for Gold to reach the $10,000 to $12,000 range during this Gold Bull and we still stand by that forecast. Let me explain where we are at this point in time.
This is not a typical bull market. Gold is not rising in value, but instead, currencies are losing purchasing power against gold and, therefore, gold can rise as high as currencies can fall. Since currencies are falling because of increasing debt, gold can rise as high as government debt can grow. Based on official estimates, America’s debt is projected to reach $23 trillion in 2015 and, if its correlation with the price of gold remains the same, the indicated gold price would be $2,600 per ounce. However, if history is any example, it’s a safe bet that government expenditure estimates will be greatly exceeded, and [this] rising debt will cause the price of gold to rise to $10,000…over the next five years. (Let me explain further.] Words: 1767
The correlation between the gold price from 1968 until 1979 and from early 2000 until today is an amazing 89.65%! More specifically, the correlation from 1975 until April 1979 and from January 2008 until today is an astonishing 97.83% suggesting that gold will reach an ultimate top of $5,000 per troy ounce before the bubble bursts. Words: 330
It is my contention that the price of gold rallies whenever the U.S. dollar’s real short-term interest rate is below 2%, falls whenever the real short rate is above 2%, and holds steady at the equilibrium rate of 2%. Furthermore, for every one percentage point real rates differ from 2%, gold moves by eight times that amount per year. So if the real rates are at 1%, gold will move up at an 8% annualized rate. If real rates are at 0%, then gold will move up at a 16% rate (that’s been about the story for the past decade). Conversely, if the real rate jumps to 3%, then gold will drop at an 8% rate. [Let me explain.] Words: 982
I believe that the price of gold will… reach… $3,000, $4,000, and even $5,000 [per troy] ounce…during the course of this long-lasting bull market, a bull market that still has years of life left to it…[although] prices will remain extremely volatile – with big swings both up and down along a rising trend…The future price of gold is a function of past and prospective world economic, demographic, and political developments [and in this article] I review some of these developments and trends – so that you can come to your own “golden” conclusions. Words: 3800