Can Precious Metals Have A Solid Last Quarter In 2014?

Spare a thought for gold and silver, the assets left behind in a summer of gung-ho action for several indices, currencies and shares.

A bad 2013 has now been consolidated, with growth in the spring months reversed and gold headed perilously close to a new low for the year (hit on January 1st). For silver, the picture is even worse and at $1840 the metal is (at time of writing) at its lowest point for over four years. Overall, gold is down over 25% from the beginning of last year, and silver 40%; they have dropped 8% and 16% respectively since July 1.

And this bad run of form has come during a summer filled with events that would traditionally have been a boon for safer investments. Conflicts in Iraq, Ukraine and Israel all looked likely to spill yet further into global affairs, predictions of a major correction in indices grew to a clamour and political change loomed in the Scottish referendum and European elections.

But instead of flocking to a safer haven, investors have remained bullish for a remarkably long period. With economic recovery finally tangible, traders appear to be investing in other assets with gusto and scant regard for the warnings of bearish commentators and analysts. New highs have been set on the Dow Jones and S&P 500, whilst the USD has undergone an impressive rally.

It is the strong belief in an imminent rate rise – for a while placed in either the US or UK, but now firmly with the Federal Reserve – that has really hurt precious metals. As traders collectively ignore attempts from the Federal Reserve to cool speculation of an imminent rise, instead choosing to focus on figures showing economic growth, investment is flocking to interest-led assets.

It’s not just hurting gold and silver either. The yen has had a torrid time this summer as moves away from safe investment areas and the continued stifling effect of Abenomics drive traders elsewhere.

Gold and Silver falls, as dollar gains against the yen increase. Data from IG’s commodity and forex live prices platform.

So what might bring back the good times for gold? So far, reports of Russian aggression, a momentous day for the pound, and a shock,weak non-farm payrolls figure have all offered little succour for the beleaguered commodity.

In truth, the arrival of a rate rise sooner rather than later could be good news for gold. Perhaps not in the short term, as those investors who have not yet sought out richer returns move away; but at least to break the current cycle of growing speculation (and drops in precious metals) before each announcement or economic release from a major economy.

Get The News You Want

Read market moving news with a personalized feed of stocks you care about.

Get The App

If current behaviour persists gold could get driven further into ‘bargain’ territory if a rate rise is confirmed, bringing an influx of traders back to the asset. Should higher interest rates also lead to an explosion in forex volatility, the sudden lease of life in the markets would also see gold become useful once more.

In order for 2014 not to be seen as another disaster year for precious metals, a major sea change will be needed soon. For most, a rate rise from a major economy is the only real way that the markets will move into a different gear.

With that in mind precious metals dealers and brokers may well be wishing that a clear decision on interest rates– either an impending rise or concrete delay – comes before January is upon us before the story that has dominated 2014 is allowed to trundle into the new year.

Spread bets and CFDs are leveraged products. Spread betting and CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please ensure that you fully understand the risks involved.

This information has been prepared by IG, a trading name of IG Markets Limited. The material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.