Gold Futures surged the most in three weeks following rising demand from Asian investors. To be blunt, 2013 was not kind to gold with prices recording a rare year-over-year decline. Gold has traditionally been one of the safest investments in the world. However, many investors felt it was overvalued following years of skyrocketing prices amid uncertainty in financial markets.
Throughout 2013, demand from Asia was high as Asian investors looked to hedge against inflation and uncertainty in currency markets by investing in gold. China generated at least 797.8 metric tonnes worth of demand, while India generated an additional 715.7 metric tonnes. Other Asian countries also generated strong levels of gold.
Now, gold prices are surging higher amid renewed demand from Asian investors. Consider that India is lifting restrictions. It had previously installed tougher regulations to curb gold buying amid an attempt to support its currency. Meanwhile, demand from China and other countries remains high while investors in the West slow their sell-off of gold.
The Rise and Fall of Gold
Gold prices generally climb during times of economic uncertainties. This is because many investors feel that gold is a safer investment than stocks and currencies. Simply put, gold offers something tangible and physical, not just paper with assigned values. As gold prices move higher, gold futures also generally move higher.
Following the 2008 Financial Crisis, gold generally trended upwards. Even as the global economy stabilized, gold prices continued to climb. This is amid U.S. and other national stimulus packages that injected more money into the market. Still, many investors have come to believe that gold was over-valued. These market sentiments manifested themselves in 2013 when gold prices generally trended downward.
Gold Futures Rising Across the Globe
Gold futures on the Comex in New York rose to $1,225 dollars, a 1.9 percent increase. This comes after a decline to $1181.40 on December 31st, which was the lowest price for futures since last June. Demand in the United States goes a long way in determining gold and gold future prices world wide. So make sure you pay attention to the Comex if investing in gold futures.
Meanwhile, Asian investors are paying a large premium of $23 dollars for the immediate delivery of gold. This suggests that many Asian investors believe that gold prices will rise in the coming days. So they want to get their hands on gold as quickly as possible before prices rise.
Could Gold Futures Rise in 2014
Gold posted one of its biggest declines in history throughout 2013, tumbling some 28%. This marks the first drop since 2000 and the biggest drop since 1981, when Reagan and friends were fighting stagflation. Still, a big drop often creates an opportunity for a strong rebound, which could lead to gains throughout 2014.
With India lifting restrictions, demand from said country should begin to grow. Indian investors and jewelry makers generate huge amounts of demand. So as the government lifts restrictions, don’t be surprised if pent up demand causes a surge in gold prices, especially in the short-term. This could spark a rally for gold and set the stage for a strong year.
Besides investors, rising demand for gold jewelry could also push prices higher. It’s easy to underestimate how much demand for jewelry can impact gold prices amid investors and governments buying mass quantities. However, each ring and earring can really add up. As Asian countries become wealthier, demand for jewelry and similar luxury goods should rise. This could send gold prices skyrocketing.
Investors in gold futures are trying to predict whether gold will rise (or fall if short-selling), so rising prices suggest that people think 2014 will be a rosy year for gold. Investors interested in futures should closely consider gold. While nothing is certain in the investing world, 2014 could be the year for gold futures.