Gold Surprises to the Upside: It Leads Most Major Asset Gains in 2014

Gold is outperforming nearly every other major asset this year, including U.S. stocks, bonds, emerging markets and the dollar.

Given that gold did so poorly in 2013 – down by a withering 28 percent as the world flocked to giddy stock markets instead – the reversal so that it is up about 11 percent in 2014 may seem surprising, except there may be some good reasons for it.

Brien Lundin, editor of Gold Newsletter, told MarketWatch gold has benefited lately from both Western speculators, some of them spooked by global political events, and also from Eastern savers, as consumers in China and India continued a buying surge.


“The crisis in Ukraine prompted a speculative buying surge that spiked the gold prices higher,” he said.

Mike McGlone, head of research at ETF Securities, suggested that if stocks stumble this year, gold could go up, since the two assets tend to move in opposite directions

Gold also tends to do poorly when bond yields go up, which was the case in 2013. But bond yields have been falling this year, which so far is supportive of gold.

The precious metal also tends to move inversely with the dollar, and the dollar has fallen in 2014. But the dollar weakness may not last, according to David Song, a currency analyst at Daily FX.

Song told MarketWatch that since the Federal Reserve is moving toward normalized monetary policy, “expectations for higher rates in 2015 should heighten the appeal of the greenback, while gold looks poised to resume the downward trend from back in 2012.

While gold has so far outperformed the major asset classes, there are some lesser commodities that are doing even better in 2014. Coffee prices are up 68 percent, hogs are up 55 percent, milk is ahead 23 percent and corn is up 15 percent, compared with gold’s 11 percent year-to-date increase.

Less-accommodative remarks from Fed Chair Janet Yellen this week may actually be weighing on gold prices, Barron’s reported.

“The Fed meeting certainly injected uncertainty into gold prices as interest rates zoomed up, strengthened the dollar pricing gold into a more expensive asset,” George Gero, a precious metals strategist at RBC Capital Markets, wrote in a client email, according to Barron’s

At midday Friday, gold was trading at $1,336 per ounce, up $5 for the day.

SOURCE  http://www.moneynews.com/InvestingAnalysis/gold-dollar-stocks-asset/2014/03/21/id/560959#ixzz2wt1ZWgdA