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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This information has been prepared by IG, a trading name of IG Markets Limited and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. International accounts are offered by IG Markets Limited in the UK (FCA Number 195355), a juristic representative of IG Markets South Africa Limited (FSP No 41393). South African residents are required to obtain the necessary tax clearance certificates in line with their foreign investment allowance and may not use credit or debit cards to fund their international account.