Gold In Early 2014: Chinese New Year Is Eyed For Demand Hints

As gold ends its worst year for price declines in three decades, and crawls to its first annual price drop since 2000, gold bugs look to 2014 for potential winds of change.

But it’s unclear what exactly to expect for the world’s most popular precious metal in the initial months of 2014. Many analysts expect the yellow metal to trade narrowly between $1,150 per ounce to $1,250 per ounce, or at the extremes, from $1,000/oz to $1,400/oz.

If prices fall below $1,000/oz, all bets are off the table, though few bank analysts predict that threshold will be breached, unless a major as-yet-unknown catalyst appears. But few analysts see prices climbing above $1,400/oz in the near term.

Recent mixed U.S. economic data failed to move bullion prices much either way, wrote HSBC Holdings PLC (LON:HSBA) analyst James Steel in a research note on Monday. Higher yields on 10-year Treasury bonds, a key interest rate benchmark, could strike gold further and expose it to lower prices, he said.

Yields spiked above 3 percent for the first time in more than two years last Friday. Gold traditionally becomes cheaper as interest rates rise, partly because investors don’t accumulate any interest income from holding gold, unlike bonds.

“We’re treading the bottom now,” CPM Group commodities trader Carlos Sanchez told IBTimes on Dec. 20. “Look for prices to tick up in the second half of 2014. … The longer prices stay at this level, the more pent-up demand will build for these metals.”

Sanchez doesn’t see gold prices falling below $1,100/oz in 2014, with its sister silver unlikely to fall below $17/oz.

Remarkable economic growth and stock market rallies in 2013 may have already peaked, leading to more modest headlines in 2014. That translates into a potential boon to gold prices, said Sanchez. Good economic growth and bullish equities are widely seen as negative for gold, since investors desert gold for more profitable stocks in happy economic times.

Midterm Congressional elections in late 2014 may also factor into gold prices, as political uncertainty and posturing about debt or deficits usually impacts gold markets.

Before then, investors will watch Chinese New Year gold sales closely, since the holiday is a traditionally strong season for gold buying by the Chinese, who look set to become the world’s biggest consumers of gold this year.

But in an ominous early sign, gold exports from Hong Kong to China fell 42 percent on a monthly basis in November, according to the South China Morning Post. That may be because Chinese consumers have already snapped up tonnes of the metal earlier this year, when prices plunged and bargain buyers flocked to jewelry stores.

China’s Lunar New Year falls on Jan. 31, 2014, this year. If gold prices don’t look to edge up significantly in 2014, though, Chinese buyers could be less aggressive, further pressuring prices.

India, often crowned the world’s largest consumer of gold in past years, has been unhelpful for gold this year. Government import restrictions have led to smuggling, gold shortages and soaring prices for ordinary Indian consumers, leading many to switch to silver.

Severe Indian restrictions on gold are likely to be lifted in 2014, Capital Economics’ commodities researcher Julian Jessop told IBTimes in an email. That’s partly because trade pressures should ease as oil prices fall and Indian exports grow.

“The authorities cannot hold back demand forever and an easing of restrictions may be a popular move before (or after) the elections,” wrote Jessop on Dec. 24.

Gold bugs and bears alike will also look to the World Gold Council’s next quarterly demand report in February.

Signals for gold are all cautious into 2014, though many agree prospects should improve because Federal Reserve tapering, gold’s most influential driver this year, has already been baked into prices.

“The New Year might be met by a fresh wave of selling appetite. Apart from some anticipated index-related buying in early 2014 and seasonal Chinese New Year physical demand, there is limited scope for a cushion,” wrote UBS AG (VTX:UBSN) analyst Joni Teves in a Dec. 19 note. “The current macro picture provides little incentive for investors to get back into gold right now.”

At the very least, gold in 2014 probably won’t drag down the other precious metals – silver, platinum and palladium – as much as it has this year, wrote ETF Securities analyst Mike McGlone in an email to IBTimes.

Meanwhile, pressure prevails, with traders watching as prices hover near the 2013 low of $1,179/oz.

“We think its just a matter of several more trading days before the June low of $1,179 is taken out,” wrote precious metals analyst Edward Meir in his last, “less than cheerful” note of 2013.