Cache Metals 2014 Precious Metals Outlook
It was a choppy end to 2013 as metals saw a broad based decline over the year of 28%. Precious metals have succumbed to selling pressure as Exchange Traded Funds (ETF) holders liquidated in favour of equities. ETF holdings have fallen back to levels last seen in 2008 before the global crisis. Investors lost faith in the metal as a store of value as equities rallied and an economic recovery prompted the Federal Reserve to pare its $85 billion in monthly bond. Gold fell to a year low of $1182, before recovering slightly to traded and close the year at $1202.
The yellow metal has seen a double bottom just above $1180 and seemed to stabilize around the $1200. Physical demand picked up when the metal dropped below $1200. China is set yet again to overtake India as the biggest buyer this year, may increase 29% to 1,000 tons in 2013, the World Gold Council estimates. Gold in Europe is being refined from larger bars suitable for local users into smaller sizes favored in Asia, while Deutsche Bank AG and UBS AG are among banks opening vaults in the region this year.
The main drivers for gold this year will be strong physical demand, the U.S economic recovery and the looming debt ceiling. With more than a month to go until the U.S government reaches its current debt limit, some republicans have said they will not be in favour of raising the debt ceiling without some spending cuts. President Obama has indicated he is not willing to negotiate on this topic. This topic alone should keep the metal well bid. Despite the fact the Feds are starting to scale back QE they are committed to keeping interest rates at ultra low levels for the foreseeable future. As long as monetary policy is loose and interest rates ultra-low, the opportunity cost of holding gold is negligible. This could be a backdrop for gold to rise. Expect the yellow metal to struggle to the upside with selling coming in at key levels of $1250, $1265, $1275.
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Silver has had a similar rough year; the dual role metal has lost close to 40% of its value since hitting $49. The metal has traded higher since it hit its own double bottom at just below $18.70. Silver has managed to regain the $20.00 level and now is well supported. Physical demand remains a driver but with gold facing heads winds it could hit silver as well. Expect buying on dips to become very attractive.
The U.S mint has recorded record sales for Silver Coins for 2013. The Mint sold 42.675 million ounces of Silver American Eagle coins during the year, up 26% from 33.7 million ounces sold in 2012. It was the most silver coins sold in a year since the Mint started producing the American Eagle series in 1986.
The rally for Precious Metals isn't over, but has taken a pause to access the U.S economic situation. With markets such as these, dips should be met with buying. Holding Physical Metals in ones portfolio is a must with fiat currencies being devalued daily.
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