January 13, 2014 by Liberty
The mainstream opinions on gold have been clear. Most major economic forecasts predict this is going to be a fairly rough year for gold prices. Some of the predictions go as far as saying price declines of 10-15% are coming over this year. That prediction is mostly based on the direction the market price for gold has went this year.
At the beginning of 2013 gold prices were above $1,600 an ounce. At the start of 2014, gold prices have dropped all the way down to $1,200 an ounce. It’s very simple to predict that gold prices will continue their slow decline in 2014 but there are a number of factors that need to be considered.
Physical Gold Demand Is Higher Than Ever
Despite the price of gold dropping dramatically, the actual demand for physical gold has been increasing. Specifically, China has been swallowing a huge amount of physical gold. That raises a number of questions about who exactly is selling the gold.
If physical gold demand is increasing, why on earth would the price have dropped $400 over a single year?
The supply of gold this year has not increased dramatically. That means there must be more to this story.
I believe that this increase in physical demand and decrease in price is based on the speculation that went into the gold market from the struggling economy. Speculators saw that the price of gold was a sure thing to increase and they bought the price all the way up. This year, the speculative money started to run back to greener pastures.
People do not buy physical gold to speculate. People buy physical gold as a hedge. Buying and selling physical gold is not easy and is significantly more complicated than just buying through paper assets. Physical gold demand is the gold that is slow to sell after purchasing. In fact, most of the physical gold buyers don’t even track gold going up or down 10%. That’s because they are purchasing based on fundamentals unrelated to price.
Physical gold buyers are a great sign for gold prices in 2014 and later. They’re a sign that gold prices have some committed money involved and not just speculative fluff.
When Does The Speculative Money End
I believe the number one question for the gold prices in 2014 is “When does the speculative money end?” Gold prices dropped like a rock due to speculation but it looks like the quick money has completely abandoned ship.
The first half of 2014 included a drop in gold prices down to 1200. The second half of the year showed a short rally in the price of gold back up but it again dropped down to around 1200. The relatively quick changes in the gold market are not a good sign of significantly reduced speculation.
A large percentage of the interested market is interested in buying and selling for quick gains. That means the price is still rather unpredictable.
Gold still has one of the most powerful markets in the world. It has thousands of years behind it. Much of the physical gold demand is coming from uncertainties in the markets. Inflation and government concerns are causing a rush for physical gold. As government concerns increase, this demand for gold should only be expected to grow.
That is a fundamental that gold has going for it that’s strengthening every year. Many major countries around the world are losing the trust of their citizens. Every time there is a major concern with government, gold prices go up.
Luckily for gold investors, this looks like that concern is continuing to grow by the year.
Gold Prices In 2014 Probably Won’t Be Good For Speculators
There is no reasonable reason to expect a major turnaround in gold prices. Short of a major economic upheaval, there is little reason to expect a major increase in golds price by the end of next year. The federal reserve is continuing a major influx of QE that offers much better options for short term gains. There is very little reason to be speculating in the price of gold right now.
Now Is Still The Time To Buy
There is no reason to believe gold prices will be going up in the next year but the long term prospects for gold are getting more and more powerful by the year. The physical demand for gold is still huge and right now, the market is not all that interested in purchasing gold. That means you’re getting a fair price to buy. You don’t need to worry that the speculative money has shot up the price too much.
I expect that 2014 could be a rocky year for gold but short of heaping financial overalls in many major governments around the world, the price is still looking pretty fair. There are plenty of opportunities for speculative gains outside of gold but now is a great time to be looking at your long term financial strategy using gold.
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