Gold had a rough 2013. With a loss of 28% on the year, the spot price of gold was down by nearly the same percentage that the S&P 500 was up. And I don’t expect gold to regain its shimmer in 2014.
Let’s take a look at the macro environment as we enter the new year:
- The inflation that gold enthusiasts have feared since the onset of the 2008 crisis is dead on arrival. The latest CPI figures show an inflation rate of just 1.2%, and energy prices are actually falling.
- The quantitative easing that fueled the inflation fears of the past few years is already being tapered, from $85 billion in bond purchases per month to $75 billion per month…with more tapering to come.
- The Federal budget deficit, though still far too high, continues to fall and is expected to be just 3.3% of GDP in fiscal year 2014.
- Gold miners are contemplating hedging their risk by selling their production forward, which will effectively cap the price of gold (and sends a very negative signal to the market).
- Hedge funds and other large institutional buyers—the driving force behind much of the rise in the spot price of gold in the past decade—appear to be abandoning gold if the outflows from gold ETFs are any indication. Gold ETF holdings are now at their lowest levels since 2008.
- Gold now has competition in the anti-establishment crowd from Bitcoin and other “virtual” currencies. (I think Bitcoin is a joke, mind you, but that doesn’t mean that it won’t continue to steal gold’s thunder for a while longer.)
And on top of all of this, we should remember that gold had a monster secular bull market run that lasted twelve years. When the last bull market in gold broke, in 1980, it took two decades for it to finally find a bottom.
I try not to spend much time on specific price targets, as I see these as being something of a distraction but I expect the spot price of gold to finish in the range of $1,000 to $1,100.
Charles Lewis Sizemore, CFA, is the editor of Macro Trend Investor and chief investment officer of the investment firm Sizemore Capital Management. Click here to receive his FREE weekly e-letter covering market insights, global trends, and the best stocks and ETFs to profit from today’s exciting megatrends.
This article first appeared on InvestorPlace.