• The average price of gold rose by around 1½% in January and has lifted a further 4½% in February to date, the first consecutive rise since late 2012. Prices have been volatile of late, but are currently trading at around $1,330 per ounce.
• Last year, gold recorded its first annual price decline since 2000, despite strong physical demand for the shiny metal, as speculative investors ran down their holdings in response to Fed QE tapering and an outlook for still soft inflation.
• Since the start of the year, the price of gold has lifted again, supported by a run of softer than expected US economic data, relevant to expectations over the timing and size of additional QE tapering (which the Fed emphasis is ‘data dependant’).
• Emerging market jitters and geopolitical risks have been another source of support for gold recently and have contributed to the volatility in markets.
• These patterns are likely to continue in the near-term, but the US economy is expected to be the primary driver of gold price trends in 2014 and 2015. Our view is that the US recovery will get back on track this year once the impact from bad weather passes, allowing the Fed to continue with its tapering program (to be completed by years end). A higher USD and rising interest rates will weigh on gold prices.
• Physical demand for gold has been quite strong, particularly in Asia as consumers respond to lower prices – even as Indian official import demand is dampened by government import restrictions and currency pressures. This is likely to continue to be a relative bright spot for the gold market, although the possibility of further negative shocks to emerging market currencies could be a risk. The Indian import restrictions are expected to be lifted late this year, or possibly in 2015.

For further analysis download the full report.

• Gold Market Update – February 2014 (PDF, 270 KB)