Gold price kicks off 2014 with a bang
The gold price surged more than 2% to a two-week high on Thursday, attempting a comeback on the first day of trading in 2014 after last year's dismal performance.
On the Comex division of the New York Mercantile Exchange gold for February delivery added $28 an ounce to $1,230.80 in early afternoon trade.
Gold was boosted by a weaker dollar, bargain hunting, investor rotation out of US stocks which after a record setting 2013 suffered a triple digit loss on Thursday.
The price of of gold ended 2013 down 28% at a shade over $1,200 an ounce, bringing a 12-year bull run that took it from around $270 an ounce at the end of 2000 to a record high above $1,900 in September 2011 to a decisive end.
Investors exited the market in droves last year and selling accelerated again in December, with holdings in exchange traded products backed by gold falling the most since June.
Net selling for the year amounted to 869 tonnes with the bulk of the selling – 586 tonnes – occurring in the first half of 2013.
Ole Hansen, head of commodity strategy at Denmark's Saxo Bank, in a research note Thursday points out that only six out of 52 weeks saw net buying during 2013:
"The behaviour of investors will be watched very close as 2014 begins for any signs of whether the relatively calm price action may attract some fresh investment into yellow metal, either through futures or exchange traded products."
Hansen believes most of the outflows from gold ETFs has happened by now and consequently the metal is in a much better position to react to gold-friendly news. During the first half of 2014 gold would remain under pressure, but he is cautiously optimistic looking further into the year.
The performance of precious metals is a stark contrast to US stock which enjoyed a bumper 2013. The S&P 500 rose 29.6%, the biggest annual gain since 1997, while the Dow blue chip index climbed 26.5% in 2013, the best performance since 1995.
Compared to gold and silver, equities now look overbought. The Financial Post quotes Julian Jessop, chief global economist at Capital Economics, as saying gold could revisit $1,400 this year and could probably go higher:
"Overall, then, we see plenty of scope for gold to bounce back in 2014. Indeed, the poor performance in 2013 has left the precious metal looking attractive again compared to other assets, including equities."