As 2014 comes to an end and we get ready for the new year, now is a good time to do a quick assessment of the gold market. The numerous price swings throughout the year may have been good for traders, but they do not mean much for long-term investors—yet. If you owned an ounce of gold on January 2, 2014 and still owned it on December 9, 2014, you are now $6.66 richer. The gold price on January 2 was $1,224.18 and on December 9 it was $1,230.84. The high for the year of $1,382.84 was hit on March 14 and the low for the year of $1,140.16 occurred on November 5.
According to the December 5, 2014, Kitco News Gold Survey that polled bullion dealers, investment bankers, futures traders, and technical-chart analysts, the sentiment was somewhat bearish for gold for the next week (December 8-12). Of the 21 respondents, 47.6 percent were bearish, 33.3 percent were bullish, and 19.1 percent were neutral. Currently, it seems like gold prices are stabilizing and that they could go either way in the next year. Based on the mixed forecasts, it is most likely that gold will trade in a narrow range until there is more clarity over how future events will unfold. Owning physical gold like gold coins, however, will always be valuable; the yellow metal is valued by societies all over the world and gold remains a symbol of wealth even when other economic systems fail—which is why so many have flocked in droves to the safe haven of gold in the past few years especially.
In November, Credit Suisse analysts were predicting that gold would drop to $950 per ounce in 2015. How accurate will this prediction be? John Paulson, a man who, not too long ago, made billions by being long 31 million shares of the SPDR Gold Trust (GLD), is still the largest shareholder. Paulson & Co. is holding on to the same position (10,234,852 shares) it has owned since June of 2013.
There are more than a few good reasons why John Paulson and other savvy investors still believe in owning gold, even after the swell has started to lull.
Fed tightening is net-positive for gold. It is true that rising interest rates can be bad for gold, but they are worse for the stock market. Very positive real GDP and non-farm payroll numbers will make it more likely that the Fed will start raising interest rates, sooner, rather than later, in 2015. GDP growth was 4.6 percent for the second quarter of 2014 and 3.9 percent for the third quarter of 2014. In the last three months, 835,000 new jobs were created, including 331,000 in November. When the five-year stock market bubble bursts, investors who have maintained a store of gold will appreciate their sudden increase in value.
Central banks are buying gold. It is no secret that the Chinese have been accumulating massive amounts of gold or that the same thing is happening in Russia. Currencies like the Russian Ruble and the Chinese Yuan are being exchanged for the precious metal. Many other central banks are seeing the value in owning gold and that in itself is a positive reason to own gold in 2015. There is only a finite amount of physical gold available aboveground, so when central banks claim a large portion of it, less becomes available in the marketplace; this should increase demand and raise prices. Furthermore, when central banks start investing in large quantities of gold, it’s a sign they understand the flimsiness of their own paper currency.
A national debt over $18 trillion. You can’t just keep kicking the can down the road by borrowing more and more money to service the national debt. Even the full faith and credit of the United States is not enough to keep lenders from demanding a higher rate of return on their loans to the U.S. government. Just as is true in personal finances, too much debt stifles growth and can cause an economic collapse. Inflation and unstable currencies make gold an extremely attractive investment to wary investors.
Combat in Iraq and political strife. Outgoing Secretary of Defense Chuck Hagel was just in Iraq, where he told the Iraqi leadership that the United States was committed to helping Iraq battle ISIS and recapture the land they had lost. Although he cautioned that Iraq would have to take the initiative, is there any doubt that the U.S. will become even more entrenched in the war? As a country, we are also dealing with a defiant President Putin in Russia, Ebola in Africa, and growing protests over the police killings of African Americans right here at home. Add in the tensions between the Democrats and Republicans (remember the Republicans now control both houses) and you have the makings of another turbulent year.
During times of national debt and economic crisis, gold retains its value. Especially when stocks and bonds lose investor confidence, gold remains as a tangible safe haven investment. Some gold coins are even eligible to be put into a retirement account for long-term safe storage. SBC Gold shows how to keep physical gold in a self-directed precious metals IRA as a part of your savings strategy. Experienced investors understand the wisdom of a diversified portfolio, and may keep 5-10% of their retirement funds in gold.
When it comes down to it, savvy investors do not always follow the crowd. They do their research and make investment decisions based on research. There is a strong bullish case to be made for higher gold prices in 2015. Ask yourself whether gold is closer to a bottom or closer to a top. If you think that there is a greater probability to the upside, then you may be thinking seriously about owning gold in 2015. Yet, despite whether gold is bearish or bullish within the confines of the next year, there is an even stronger case to be made for investing at least some percentage of your assets in physical gold as an insurance policy against unpredictable economic conditions for long-term net safety.