2014 has not been a gold-en year; outlook looks bleak for the yellow metal

Gold has been oscillating around the $1200 handle for a number of days now, but with a slightly bearish bias. Generally neither the bulls, nor the bears have been in full control of things. In fact, this statement can be applied for the whole of 2014: although gold has fluctuated quite a bit over the past 12 months, it is down only 3.5 per cent year to date currently. Gold has been held back this year by a number of factors, most notably by the rallying dollar and stock markets. As we head towards the end of 2014, both of these assets are still climbing higher, which makes it unlikely we will see a “Santa Rally” in bullion. What’s more, the lack of inflation in the major economies has made the yellow metal a poor choice for store of value. Gold has not been much of a choice as a safe haven asset either, with investors preferring to hold the yen or the Swiss franc instead during times of market turmoil. But with the Swiss National Bank recently cutting interest rates to negative, this may have boosted the yellow metal’s appeal in this regard. It is also worth pointing out the fact that despite all of the aforementioned headwinds, gold has dropped only moderately so far this year. So, it could make a comeback early next year if there is a sudden need for safety, if, for example, the Greek situation comes back to the forefront of investors’ minds. That, or if physical demand picks up momentum, say, due to a sharp increase in jewellery purchases ahead of the Chinese New Year. But even then, the bulls would do very well to drive gold’s price meaningfully higher.

The short term outlook still spears to favour the bears. The recent rally was halted a couple of weeks ago at just below $1240, a level which corresponds with a long-term bearish trend line. Since then gold has been heading steadily lower and at the time of this writing it is coming under fresh pressure. As things stand, a revisit of support at $1180 looks very much likely. Below this level is the 61.8% Fibonacci retracement of the recent upswing at $1172/3, which may also offer some support. Now that it has broken below the $1200 mark, the potential rallies could be faded around this level, with further resistance coming in around $1213.