Is gold’s glitter fading?
Late-year surge falters amid predictions for 2015 bear market
TORONTO — Gold posted a second straight year of losses for the first time since 1998 as steady declines this week erased a late-year surge.
Gold prices had been doing well since the release of the U.S. Federal Open Market Committee notes on Dec. 17, which appeared to dismiss an early interest rate hike this year. The Fed’s loose monetary policy is generally viewed as a positive for gold prices.
But gold’s little run ended Wednesday, when prices dropped 1.4 per cent, to close the year at $1,184.10 an ounce, and most analysts are not bullish about gold prices over the next 12 months.
The economic recovery in the United States and strengthening U.S. dollar are two main factors that will probably hold gold prices down for most of 2015.
“The improving U.S. economy, the continued better labour picture, the lack of inflation, very strong stocks and the very strong dollar weighed on gold this year,” said George Gero, a precious metals strategist at RBC Capital Markets in New York.
One of the more prominent bear calls for gold in 2015 comes from Goldman Sachs, which believes the precious metal will dip to $1,050 an ounce. Other bears include analysts at Credit Suisse Group and Société Générale.
Gold surged in early 2014, gaining more than 10 per cent in the first couple of months to hit its year high of nearly $1,400 an ounce.
But the precious metal spent the rest of the year gradually pulling back as it became increasingly clear that the U.S. economy was growing faster than expected.
Commerzbank data showed that exchange-traded products backed by gold had outflows of 142 tonnes in 2014, though that was slightly less than the 788tonne outflow in 2013, when gold prices tumbled roughly 28 per cent, the biggest decline in three decades.
Many analysts during 2014 turned bearish on the precious metal because of the surprising rebound in the U.S. economy. U.S. GDP in the third quarter expanded by a whopping 5 per cent, the strongest rate of growth in more than a decade.
As a result, gold, considered by some as a safe haven asset, or an investment against inflation, suffered as investors gained confidence in the U.S. recovery and opted for riskier assets, such as stocks.
Of course, not everyone is bearish on the precious metal. Veteran investor Dennis Gartman has recently championed investing in gold, though not in U.S. dollar terms. He said holding gold in places where currencies are expected to weaken next year, whether the result of central bank easing or a weaker economy, will be a favourable trade. He cites the yen and euro as two good examples.
For example, investors who held gold in euros this year are up about 8 per cent in 2014, while those who held gold in yen accounts are up roughly 10 per cent. Even investors who held gold in Canadian dollars, which was down roughly 8 per cent against the U.S. dollar, saw their gold holdings increase by the same amount.
“My better trade for the year will be the same trade that has been the better one for this year and the better one for the previous year, which is to be an owner of gold,” Gartman told CNBC.
The improving U.S. economy, the continued better labour picture, the lack of inflation, very strong stocks and the very strong dollar weighed on gold this year. GEORGE GERO RBC CAPITAL MARKETS STRATEGIST