"There’s a tremendous amount of momentum building under the surface for this yellow metal"
The end of a year and the anticipation of another always brings a wave of predictions, and with gold unexpectedly breaking its 12-year winning streak in 2013, analysts and investing pros have been weighing in on the metal's 2014 prospects. And despite what you might have heard from the mainstream financial media, gold bulls are alive and well this year.One of the most bullish out there is Dave Lutz, head of ETF trading at Stifel Nicolaus, who appeared on Yahoo! Finance's "Breakout." Though he likes equities, he also thinks gold could beat stocks this year.
"I think gold could actually outperform the S&P," he predicted. "There’s a tremendous amount of momentum building under the surface for this yellow metal. First of all, we've got speculators, the big hedge funds, the big players on the street, they're the most short that they've been in eight years. We're starting to get a lot of signs that demand is picking up in China. China's going to overtake India as the largest consumer of the metal (in 2014). And you know what? China is getting ready to roll out ETFs. Look what the GLD has done or the IAU has done as far as the metal's concerned. They were buying tons upon tons of gold. So there could definitely be some momentum."
Here are some other gold bulls' recent forecasts:
Michael A. Gayed of Pension Partners: "This year may be very different. One of the biggest headwinds against gold was positive real rates, which back in January of last year I called the main dilemma against momentum. Historically, gold tends to do well when inflation is higher than nominal rates, also called a negative real-rate environment. When real rates are positive (inflation lower than nominal rates), the metal becomes less attractive due to holding and opportunity costs. There is no doubt that we aggressively entered a real-rate environment as bonds slumped and the deflation pulse took hold simultaneously.
"But what if that ends? I suspect there will come a meaningful period of time in 2014 where negative real rates return, especially under a Yellen-led Fed. This implies that either inflation expectations really pick up, or bond yields fall to counter deflationary pressure.
"Everyone loved gold up until 2011, and everyone hates it now. The contrarian in me says that's why its worth watching carefully. The catalyst likely needs to be negative real rates, and with inflation expectations ticking up a bit, the 'Great Convergence of 2014' between reflation and U.S. markets may be precisely why gold's S.O.S. moment gets heard."
Julian Jessop of Capital Economics: "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. The bursting of the bitcoin bubble may even make gold look more appealing to Chinese investors."
Axel Merk of Merk Investments: "We like gold as well, as people hate it right now. And conversely, we think the stock market and the bond market are both not the greatest places to be. More broadly speaking, the time to take chips off the table -- and I'm referring about the S&P here -- is when times are good. You want to rebalance. ... I sleep much better at night with my gold holdings than with my equity holdings. You want something that's inversely correlated with the stock market."
Emad Mostaque of NOAH Capital Markets: "I see bonds having a final blow soon on some 'good' data in Q1 before outperforming significantly for the rest of the year, with U.S. 10-year yields resuming their steady path towards our eventual target of 1%. Note a drop in real interest rates is bullish gold and, given a deteriorating economic outlook, I would expect to see the barbaric relic hit $1,500 this year."
Ed Moy, former U.S. Mint director: "In the short term, expect a lot of downward pressure on gold. There's going to be a lot of volatility and uncertainty in gold prices, but the longer term looks pretty interesting. When you take a look at gold at $1,200, it's a relative bargain compared to all the overprices stocks, and given the extremely strong demand from Asia -- it was at historic highs last year -- those should put some upward pressure on gold in the long term.
"First half of the year, I think it will pretty much be trading in a narrow band slightly declining from where it is right now, maybe $1,250, $1,300, maybe down to $1,100. But the last half of the year is going to be the interesting part of the year. that's where you're going to see greater swings and for gold investors the potential for higher gold prices. ... No one's ever unwound a $4 trillion balance sheet before."
Michael Pento of Pento Portfolio Strategies: "The reason why the dollar price of gold soared from $200 per ounce in the beginning of the last decade, to nearly $2,000 per ounce by the year 2011, was because many feared skyrocketing deficits in the U.S. would soon lead to massive money printing and debt monetization on the part of our central bank. Even though the debt monetization did materialize, as many had feared, the government has also managed to manufacture a temporary 'recovery' in the economy by forcing interest rates to zero percent and thus producing bubbles in bonds, stocks and real estate. Theses asset bubbles led to a consumption bubble, which brought about an ersatz resurgence in government revenue. Deficits then fell hundreds of billions of dollars (although they are still gigantic and unsustainable), which has in turn caused the price of gold to undergo a correction from its decade-long advance and to consolidate at the $1,200 per ounce range. ... The secular bull market in gold will re-emerge in 2014. I believe the yellow metal will approach $1,600 per ounce by the end of next year."
Martin Pring of Pring Turner Capital: "Something tells me we might be experiencing the give-up phase for gold. By that I mean a point in the gold price cycle when just about everyone gives up on the possibility that gold prices will ever rise again. Which could mean the time to buy is here.
For instance, in mid-December, The Wall Street Journalfeatured a front-page article on the yellow metal in which one money manager opined that 'The reasons to own gold have just evaporated.' Another, known for his perennially bullish outlook for commodities, has apparently hedged his gold position but told the Journal 'I wouldn't buy gold right now under any circumstances.' Another strategist at a major French bank recently commented in a report that 'The yellow metal has lost its once-crucial role as a safe haven.'
"Also, consider that a recent Merrill Lynch survey of asset managers reported that commodity allocations are currently close to a 12-year low and the fact that a couple of major banks recently closed or severely cut their commodity trading departments, and you can see what I mean about the 'give-up phase.' Where were these stories when gold was trading close to $1,900?
"Add to this background the fact that investors who are usually correct at turning points are positioned for a rally, and the picture becomes clearer. Those smart investors can be found in a recent Commitments of Traders report, where the futures holdings of commercials registered close to a 12-year high."
Peter Schiff of Euro Pacific Capital: "I've been buying gold now for 14 or 15 years, and out of the last 13 years it's been down once, which was in 2013. ... What's amazing is you have this big down year and yet hardly anybody views it as a buying opportunity. ... The fundamentals for gold have never been better than they are now. The fact that so many people can't see that just makes me more bullish. ... We had a pretty big down year in 2013, so I would expect a pretty good year upwards in 2014. ... The sentiment is so overwhelmingly negative on gold and on gold mining stocks -- gold is up $35 so far for the first two days of January. How's the stock market doing?"
Eugen Weinberg of Commerzbank: "The equity markets have already had a very good run over the last couple of years, and we're having probably a bumpy road starting from the second quarter of this year, and then definitely we'll see a pickup in the investment demand for gold and also higher prices for gold. ... We must also mention the massive pickup in the demand from China, which has become a kind of 'China put' on gold. China bought probably about 1,000 tons for the first time ever, and this has been providing a floor. I would bet that the Chinese investors have deeper pockets than the ETF holders who might sell in the short term. So short-term probably flatter prices in the first quarter and then a pickup in the prices in the second quarter as we see more volatility in the equity markets."
Andy Xie at Caixin Online: "I believe that gold has already bottomed in 2013. In a Fed tightening cycle, gold tends to go down. Financial players in this cycle have been impatient to kick gold down as hard as possible. They short gold producers first and then gold itself. The gold stocks are much bigger in value than the gold market per se. Hence, the trading strategy of shorting gold stocks and then gold could be lucrative. As more and more people pursue the same trade, the gold is kicked down way beyond its fundamentals.
"Gold demand is from emerging economies. The latter have been experiencing high inflation. The demand for gold has been strong despite the weak gold price in 2013. The current gold price is already below the production cost of some of the biggest mines in the world. I suspect that, in 2014, some mines may be shut. The reduction in supply will become a counterforce against the Fed’s tightening.
"I want to repeat my long-term bullish call on gold. Its price is likely to top $3,000 in five years. The currency-market instability and the likely global stagflation will strengthen gold demand for wealth preservation in emerging economies. As supply is unable to grow, the price has to rise to balance the market."
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