Gold bounces away from danger

Will 2014 be kinder than 2013 to the precious metal?

What a shocker 2013 was for gold. It was down just over 28% on the year, and was struggling to convince us of any reason for its downward pattern to change. This performance was the precious metal’s worst in over thirty years, and the first trading days of 2014 have so far been a little kinder. But despite the solid start, momentum traders will need a lot more to tempt them off the sidelines.

A key battle will unfold in the coming days. On one side we have the negative sentiment for the commodity, and on the other is the fact that a number of the larger gold miners have already stated that a prolonged presence below the $1200 level would seriously threaten the viability of a number of operations. As such, this could trigger a series of mine closures.

With the market having reacted in such a measured way to the Federal Reserve’s reduction in its monthly debt-purchasing scheme, it looks unlikely that investors will feel any instant need for flight to security. If last year’s threat of military conflict in Syria was not enough to trigger a rush of panic gold-buying, you have to question what would.

In short, it’s a solid start to the year. But we are already wondering when it will end, and we would want to see a close above the $1225 level to reassess. 

Spot gold chart

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