Gold Could Benefit From More Safe Haven Buying

Last year posed some major difficulties for gold investors.  Those that were looking to buy into the asset as it was hitting its all-time highs above $1,920 per ounce were met with some incredible disappointments as markets showed a violent downside reversal in 2013.  Last year was the first negative year for gold in more than a decade, and broader market prices for the metal showed annual declines of 28%.  So for those that bought into the hype and expected substantial riches from investments in gold, the wider financial environment was just not conducive to meeting those goals.  

Safe Haven Buys

So far, 2014 has been much kinder for gold investors, with relatively impressive rallies seen after bouncing off of the lows from last year.  A good deal of this strength has come as a result of the increased need for safe haven buying that has been seen after the rising political and military escalations that have been seen in Russia and in the Ukraine.  These types of market reactions are generally common when there are rising uncertainties in major economies, so it is not entirely surprising to see these events having this type of reaction in gold markets.  The real question going forward is whether or not these trends will be able to continue, and this will be critical for those that are looking to trade gold at their current levels.  

The answer to this question will be seen in the extent to which these two regions will be able to reach an amicable resolution.  If these tensions continue, expect the price of gold to be supported in the coming months.  If we see a quick resolution, expect to see another drop in the gold price, in a move that could build in momentum given the elevated levels that we are seeing from a short term perspective.  This issue will continue to work in central importance in whether or not this year’s gold rally can continue.  The Russian-Ukrainian conflict still has the potential to drive metals prices, and any rallies that are seen in gold are also likely to extend to silver markets as well.  This essentially means that if we continue to see a political stalemate, we can expect the SPDR Gold Trust ETF (GLD) and iShares Silver Trust ETF (SLV) to continue moving higher.  

China, the Dollar

Other central issues to watch can be found in the activity in the US Dollar and in the next set of economic data releases that will be released out of China.  Gold and the US Dollar tend to move in opposite directions, so any continued strength in the greenback will likely be accompanied by weakness in gold.  In China, markets will be looking for any indication that real growth rates are lower than previously expected.  Any indication that growth rates are slowing will likely lead to renewed safe haven buying as this would also weigh on projections for growth in the global economy.