After a 12-year unstoppable bull run, gold finally met its match in 2013. Investors had been hopping on the bandwagon with great success for a number of years, as it seemed that gold would never stop climbing. With the Fed committed to printing money as a part of its various quantitative easing programs and a general sense of uneasiness about the economy, gold was able to make historical highs in 2011. Though it fell off from its peak that year, it still had a positive run in 2012. 2013, however, was a completely different story [for more gold news and analysis subscribe to our free newsletter].
Gold’s Miserable 2013
Gold stumbled out of the gate in 2013 and rarely found any positive momentum after that. Its worst period of the year came in mid-April, when the precious metal lost more than 13% in just two trading sessions as a number of factors combined (and were sparked by Fed commentary) to cause a mass exodus in the commodity. Though gold has had a few winning streaks (usually just a handful of days) since then, it has yet to pull out of its nosedive.
Later on in the year, it was discovered that India’s Diwali season, known for hefty gold purchases, had been one of the weakest in years as far as the yellow metal is concerned. With India being one of the largest consumers of gold in the world, that news further drove gold into the dirt.
Of course, the biggest factor weighing against the precious metal was the massive run-up in equities, as the S&P 500 tacked on its highest annual gain in a decade. Juicy returns caused a flight from gold as it is often considered a “safe-haven” for when markets are shaky; that works against the commodity in prosperous markets, as investors will re-allocate to riskier sectors for a chance at better returns. This was best evidenced by the SPDR Gold Trust (GLD) in 2013. Arguably the most popular gold fund in the world, GLD saw outflows of more than $23 billion on the year, causing its assets under management to sink by more than 40%.
A Look to Gold’s 2014
After toughing out a bruising 2013, gold may be able to recover some of its losses come next year. For starters, its lower levels will eventually attract buyers to step in and create a support, though that exact level is hard to predict. On top of that, many analysts and investors fear what will happen to markets if and when the Fed decides to taper too aggressively (though the reaction to the initial taper was positive); a sell-off in equities could lead to a renewed interest in gold and push its price higher [see also What To Do With Losing Gold Positions].
Still, markets could certainly continue their run-up well into next year, in which case things will likely get worse before they get better for gold. Whether or not gold is able to turn it around in 2014 is hard to predict, but one thing is for certain: it will remain one of the most polarizing assets in the investing world as we move into the new year.
Disclosure: No positions at time of writing.