Comments: It has been uncommon for gold to score single-digit percentage moves either way over the last decade; we see 2014 being an exception. Gold could be described as the 'Marmite' asset class — investors love it or hate it, giving rise to polarization of opinion on price direction.
The two key features of 2013 were the migration of metal East and an amelioration in economic conditions. As we see it, ongoing recovery, with further dollar strength and even an uptick in interest rates explains the sharp correction lower last year but is factored into the current price. Looking ahead, we expect ongoing preference for physical over paper gold and an easing of high impact and leveraged shorting of gold futures from record levels. Even ETF redemptions should abate.
In short, we see a weak H1 as the western selling tide turns, followed by price strength in H2 as Asian buying increasingly dominates giving rise to a 4% rise for the year. As such, we expect 2014 to be a Goldilocks year — not too hot and not too cold. The biggest passion killers for gold is likely to remain prevailing U.S. dollar strength plus rising interest rates. The consensus for gold at this time seems to be robustly bearish, which for contrarians is a positive sign.
Comments: As the strongest performing asset class over a decade and the worst over the last year, silver is looking very much an investment unsuitable for widows and orphans. Its volatility scares. Investors will, however, be much encouraged by the way that investment demand within the ETFs have held up so well, and this underscores silver's growing use in industrial applications. We expect silver to record a relatively modest 8% gain on the year — that is to say maintaining its double outperformance relative to gold. The key areas to watch in 2014 should be the growth of the photovoltaics market and new applications utilizing silver's powerful antimicrobial qualities. A strong economic recovery also should boost silver demand within the electronics and brazing sectors.
If our modest forecast is correct, silver will be altogether better behaved in 2014 by scoring the lowest price change in over a decade. This will be positive for silver in the long run as industrial users become less fearful of price volatility.