As we enter the dying embers of 2013, gold appears to be on the verge of ending its impressive 12-year bull run. Although the metal has fallen heavily since the turn of 2013, conceding 22% in the year to date, I believe that a broad stabilisation in the gold price since the summer bodes well for a fresh surge higher.
In my opinion, ongoing worries about the global economy — allied to ongoing money printing by the world’s central banks — provides the perfect recipe for gold to move skywards once more. And if you share my optimism in gold’s price prospects, I believe that exchange-traded funds (ETFs) SPDR Gold Trust (NYSEMKT: GLD.US) and Gold Bullion Securities (LSE: GBS) are fantastic ways to profit from a rising metal price.
ETF demand on the upturn?
Latest data from the World Gold Council (WGC) confirmed the ongoing strength of physical gold demand from key emerging regions. The organisation noted that total consumer demand for jewellery, bars and coins clocked in at a record 2,896.5 tonnes during January-September, up more than 25% from the corresponding nine months last year. And demand during July-September was the highest third quarter total for three years.
Despite strong physical uptake, total gold demand actually fell 21% in the third quarter to 868.5 tonnes, mainly on the back of outflows from exchange-traded funds (ETFs). However, the WGC noted that the level of outflows during quarter three was far reduced from those during the previous three months. And I believe that a combination of strong physical demand and returning investor interest should boost gold prices as we enter 2014.
Fed likely to keep on printin’
Despite much chatter, market expectations of imminent monetary policy tapering by the Federal Reserve have thus far failed to materialise. And I believe that the US is set to keep its quantitative easing programme rolling steadily well into the future, a scenario which should keep gold prices bubbling as inflationary expectations rise.
Make no mistake: the US economic situation remains extremely fragile, with a continuous stream of fresh data failing to shed new light on state of the real economy there. And the central bank’s incoming governor Janet Yellen last week commented: “It is important not to remove support, especially when the recovery is fragile and the tools available to monetary policy should the economy falter are limited given that interest rates are at zero.”
Indeed, in my opinion investors should be preparing for a prolonged period of loose monetary policy across the globe. Rather than reining in the money printers, developed and developing economies alike continue to expand their already-expansive monetary policies — note the European Central Bank bringing its benchmark interest rate down to a record low of 0.25% this month. With the macroeconomic picture still touch-and-go, in my opinion gold could surge higher once more.
