Will You Earn a “Huge” Profit Buying Gold in 2014?

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By Michael Sterling

2013 wasn’t exactly the best year gold’s had as it’s still hanging above the $1,200 per-ounce level, but investors still have high hopes. Since the beginning of time, gold has been the most valuable piece of commodity. Every nation will trade for it, and every person wants a piece of it.

But in this day and age of credit, IOUs, and money laundering, gold seems to have taken a back seat. A common misconception is that it’s dying a slow dead. This can’t be further from the truth. The 2014 gold buyer has a lot to learn and a lot to remember if they want to catch up to its  potential. Above all, there are four things everyone ought to know:

#1) Federal Reserve Determines Its Price

The biggest factor that could affect the price of gold in 2014 is the policy that the Federal Reserve sets. Low interest rates have supported gold prices for years. As the 10-year Treasury yield has pushed back up 3%, gold investors face a rising opportunity cost when they choose to put their money into gold rather than other assets.

With recent legislation change, the rising dollar, and dying international economies, gold has the power to save the day. Though the Federal Reserve might play a major role in America, in the long run it doesn’t matter much across the globe.

#2) Watch The Big Boys AND The Small Boys

On top of the Federal Reserve, the other driver of the price of gold are the producers, particularly Barrick Gold (ABX) and Goldcorp (GG). Decisions to cut back on exploration and production have helped to minimize the drop in gold prices. However, this doesn’t mean that individual gold miners have opted out of exploring.

By hedging their production forward, gold miners can protect themselves against further gold-price declines. In the 2000s when companies decided to take off long-held production hedges in order to benefit from gold’s upward march, it was the miners who took it hands on which hit the market. If this happens again, gold can make a solid recovery.

#3) Gold Will Be Popular Overseas

Analysts at Australia and New Zealand Banking Group, for example, have predicted gold prices in 2014 to rise over $1,450 per-ounce, pointing to a strong demand in China as potentially soaking up supply at new lower levels. A recovery in India may also support the rise in gold prices during 2014.

Even if it doesn’t rise in America next year, gold is sure to be extremely valuable in slow economies overseas. For governments that aren’t economically strong, gold owners will have more opportunities at selling for profit.

#4) Gains Don’t Mean Squat

Gold for February 2014 delivery rose by $22.90, or 1.9%, according to MarketWatch.com. This means that gold prices climbed despite strengthening in the U.S. dollar, which tends to weigh on dollar-denominated commodity prices. Despite gold’s sizable gains, analysts are still scratching their heads about its future.

Gains can be limited for several reasons: tapering of quantitive easing, which is expected to continue at a gradual pace; waning safe-haven appeal of gold amid economic recoveries in developed markets; and poor physical demand from India due to import restrictions. As long as gold doesn’t break the $1,270 mark, the trend could still be to the downside and the low for this year could be at near the $1,054 level.