Gold’s performance stabilised this year, following the commodity’s 30 per cent value slump in 2013. However, the precious metal remains sluggish, with current prices slipping under the US$1,200 mark in November.
However, there are still plenty of reasons to be optimistic regarding gold’s prospects in the months ahead, as a number of seasonal, economic and political trends appear on the horizon that could support price rises.
Here are five reasons why investing in gold in the current climate could turn out to be a lucrative choice:
1. Swiss referendum
The upcoming Swiss referendum on gold, which takes place on November 30, has highlighted the importance that many citizens place on having adequate gold bullion reserves to underpin monetary policy.
If the vote passes, Switzerland must hold at least 20 per cent of its balance sheet in gold and will need to repatriate its bullion bars stored in Canada and the UK.
2. Japanese recession
Earlier this month, Japan officially fell into recession, with the country experiencing two consecutive quarters of negative growth. The nation’s economic performance has now performed poorly for over 20 years.
Japan’s interest rates have been below 1 per cent since 1994, and many analysts point to this as a clear indicator of why near-zero interest rate policies don’t work.
Many other countries have similar monetary initiatives in place, which could spell good news for gold should these nations follow Japan’s lead and fail to recover.
3. Seasonal strength
The end of the year marks two significant events in the gold investment calendar – the Indian wedding and festival seasons and the Chinese Golden Week. Both are extremely popular times to purchase the precious metal.
Chinese New Year celebrations, which will be on February 19 next year, are also likely to have a positive impact on gold markets over the coming months.
4. US Fed stops quantitative easing
While the US Federal Reserve’s decision to taper its quantitative easing initiative has weighed on the price of gold recently, the commodity could experience a significant rise in value if the country’s economy falters.
The Fed shut down its bond-buying program last month, following several $10 billion a month reductions over the year. At its height, the organisation was pumping $85 billion a month into the economy.
Since the move, US economic data has been mixed, with poor manufacturing figures and an underwhelming labour market performance suggesting the nation is not safe yet. Any downturn in the US is likely to have a positive effect on gold prices.
5. Dwindling supplies
As prices dropped throughout 2013, it became unprofitable for many mining companies to produce gold. This caused a number of firms to shut down loss-making operations.
If this trend continues – particularly as central banks worldwide seem to be ramping up consumption – there could be a significant gold shortage on the horizon.
As is the case with most commodities, once demand starts to outstrip supply, the value of gold will climb to plug the gap.