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    Gold the big surprise so far in 2014

    What are the main drivers behind the unexpected strong performance of gold?
    Contrary to prevailing expectations for commodities in general and gold in particular kicked off 2014 with strong gains following a big correction in 2013. 
    Last year we saw consumer’s demand for jewellery, bar and coins hitting record levels. But we also witnessed a sharp reduction in paper demand from investment managers and hedge funds, as outflows from Exchange Traded Funds more than offset the strong physical demand.
    The main drivers behind gold’s strong performance
    Most analysts still expect a bumpy year ahead for gold. But the drivers behind this expected performance can’t be denied:
    • Strong physical demand from China in 2013 was carried into 2014. 
      • The demand is to a certain extent driven by the need for safe haven assets in a country increasingly struggling with an enormous amount of debt. If not managed carefully it will cause a significant negative impact on the value of other asset classes, such as stocks and properties.
    • US are experiencing the coldest winter in 100 years, leading to a back-to-back weakness in the US job data and increasing motivation to keep interest rates lower for longer.
    • The EM crisis stabilized in January, but it’s not over yet and this, too, helps gold maintaining its credentials as a safe haven asset.
    • US bond yields stabilized at lower levels after rising strongly during the last quarter of 2013. Lower bond yields reduces the relative opportunity cost of holding gold.

    Final note on expectations
    Despite the strong 2014 beginning we still expect this to be a year of consolidation. So, don’t expect the price to rise much beyond USD 1400/oz., while continued strong consumer demand should cushion any drop back below USD 1180/oz.​

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