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The Macro Challenges Likely To Boost Gold In 2014

Gold has been a major casualty of the risk-on attitude of investors during 2013, the store-of-value asset losing around a quarter in the year to date to trade around $1,245 per ounce. Indeed, the metal is on course to record its first annual loss since around the turn of the millennium.

Still, in my opinion the macroeconomic picture remains muddy enough to support a fresh spurt in the gold price, with the potential for worsening conditions in the coming year heady enough to see investors charging towards safe-haven assets once again. And I think that exchange-traded funds (ETFs) SPDR Gold Trust (NYSEMKT: GLD.US) and Gold Bullion Securities (LSE: GBS) offer excellent exposure to the gold price.

Heed the bleak OECD warnings

The perils facing the global economy were put under the microscope again last week by the Organisation for Economic Co-operation and Development (OECD), when the body downgraded its 2014 world growth forecasts to 3.6% from its former 4% projection made in May. Indeed, the global economic recovery is expected to progress “at a moderate and uneven pace” over the next 12 months, the OECD notes.

Worryingly, the body identified a catalogue of “potential downside risks, including fiscal brinkmanship in the United States, unresolved banking problems in the euro area, the high debt burden in Japan and financial vulnerabilities in some large emerging-market economies.

Furthermore, the organisation highlighted a number of factors which have severely affected the strength of the recovery since the 2008/2009 banking crisis: weak investment, with fixed volumes from OECD nations 8% below their pre-crisis height; subdued lending conditions as banks undergo severe deleveraging; sluggish global trade growth;  and slowing expansion in developing nations.

With these issues likely to lag well into the future, I expect gold to benefit as global growth continues to drag its heels.

Scorn in the USA

The OECD placed particular emphasis on unfolding events in the US over the next year, warning that a repeat of this year’s standoff on Capitol Hill over the lifting of the debt ceiling could have devastating consequences for the world economy. Indeed, the organisation said that a breach of the ceiling could “knock the US and the global recovery off course.” The US came perilously close to default last year, and fresh rounds of brinkmanship next year could prove catastrophic for markets.

In addition, the group also warned that continued uncertainty over the tapering of the Federal Reserve’s massive quantitative easing scheme has harmed the recovery, and called for the central bank’s policy to “remain accommodative for some time“.

Such a scenario would prove extremely beneficial for gold, the hard currency benefitting from ample levels of liquidity sloshing around the system. With the doveish Janet Yellen set to take the Fed chairmanship in coming months, and data from the world’s largest economy still failing to assuage macroeconomic jitters, I expect the taps to be kept on well into 2014 at least.

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But although I believe inflows into shares could slow in 2014 as safe-haven assets again come into vogue, in my opinion there are a host of stock market starlets still primed to deliver stunning investor returns.

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> Royston does not own shares in SPDR Gold Trust or Gold Bullion Securities.