Today we have seen gold rise above the psychological level of $1,300 to $1,317 which hasn’t been seen since November last year, this is positive news to gold bugs and affirms our earlier opinion of 2014 being the year of recovery.
What has caused the price surge?
Certainly there has been a marked decline in stocks which has most likely shaken risk appetite which is likely to be the significant contributor towards the gold price.
In January retails sales showed the biggest loss since June 2012 coupled with jobless claims rising unexpectedly last week. In the much anticipated testimony meeting last week new FED chairman Janet Yellen commented that the US labour market is “far from complete”.
Gold has risen 70% between 2008 – 2011, after America’s central bank pumped more then $2 trillion into the financial system.
However, last year gold took a tumble as investor confidence grew inline with the American economy and speculation rose about the beginning of the tapering measures by the US. Gold appeared to have lost some of its safe haven appeal and gold bears were claiming this was only the beginning of the shortfalls.
However since the beginning of 2014 gold has so far climbed back by 8% and today reaching $1,317.
Clearly the US economy is not yet strong enough to support itself fully hence the slowing of tapering, the economy still requires stimulus to grow and this is supportive towards gold.
Physical demand remains strong for gold bars and coins plus the emerging market situation is not looking great.
However, physical demand is price sensitive and if prices continue to rise we may well see a reduction in physical demand.
For now the price is likely to remain fairly stable as investors take the wait and see approach for some stronger economic data which points towards the US economy growing.