Gold set for Goldilocks 2014 with 4% growth

January 13, 2014 03:56 AM


High: $1,350  
Average: $1,274  
Low: $1,180

Comments: It has been uncommon for gold to score single-digit percentage moves either way over the last decade; we see 2014 being an exception. Gold could be described as the 'Marmite' asset class — investors love it or hate it, giving rise to polarization of opinion on price direction.

The two key features of 2013 were the migration of metal East and an amelioration in economic conditions. As we see it, ongoing recovery, with further dollar strength and even an uptick in interest rates explains the sharp correction lower last year but is factored into the current price. Looking ahead, we expect ongoing preference for physical over paper gold and an easing of high impact and leveraged shorting of gold futures from record levels. Even ETF redemptions should abate.

In short, we see a weak H1 as the western selling tide turns, followed by price strength in H2 as Asian buying increasingly dominates giving rise to a 4% rise for the year. As such, we expect 2014 to be a Goldilocks year — not too hot and not too cold. The biggest passion killers for gold is likely to remain prevailing U.S. dollar strength plus rising interest rates. The consensus for gold at this time seems to be robustly bearish, which for contrarians is a positive sign.


High: $25.00 
Average: $21.60   
Low: $18.20

Comments: As the strongest performing asset class over a decade and the worst over the last year, silver is looking very much an investment unsuitable for widows and orphans. Its volatility scares. Investors will, however, be much encouraged by the way that investment demand within the ETFs have held up so well, and this underscores silver's growing use in industrial applications. We expect silver to record a relatively modest 8% gain on the year — that is to say maintaining its double outperformance relative to gold. The key areas to watch in 2014 should be the growth of the photovoltaics market and new applications utilizing silver's powerful antimicrobial qualities. A strong economic recovery also should boost silver demand within the electronics and brazing sectors.

If our modest forecast is correct, silver will be altogether better behaved in 2014 by scoring the lowest price change in over a decade. This will be positive for silver in the long run as industrial users become less fearful of price volatility.


High: $1,650 
Average: $1,522  
Low: $1,300

Comments: In 2013 global auto sales topped 80 million vehicles for the first time ever — that is 2.6 car sales every second. This news may be disappointing to platinum bulls given that prices were relatively lackluster in 2013. Expressed simply, despite the economic crisis, those industrial sectors that are intensive platinum consumers performed well — and yet the price did not seem to fully reflect it.

Looking ahead, we expect platinum to remain in a supply deficit remain of about 500k ounces in 2014. As such we are positive for the price in the medium-term. Auto-catalyst demand could better our forecast of 3.2 million ozs if demand for cars in Europe and India out-perform. The key issues for us in 2014 will be probable ongoing labor disputes in South Africa on the price positive side. On the negative, platinum needs to run quite fast just to stand still because of the ongoing erosion from substitution and thrifting in some mature applications.


High: $845 
Average: $795  
Low: $650

Comments: As the only positively performing precious metal, palladium must again be the bookies’ choice for 2014. Its strong showing underscores supply issues (both South African labor issues as well as diminished Russian stocks) while on the demand side it seems to be benefiting from good demand for gasoline cars in Asia (as opposed to high platinum diesel cars in Europe). If car sales in China continue to perform strongly again in 2014 as forecast, then this could again be a bumper year for palladium demand. As with platinum, palladium does see both substitution and thrifting in some mature applications such as the electronics sector, which could impact negatively upon investors’ willingness to hold palladium ETFs.

About the Author

Austin Kiddle is a director of the London-based gold broker Sharps Pixley Ltd.