This year was annus mediocris for gold compared with last year’s annus horribilis. Gold prices started at $1,200 an ounce and ended at $1,200 an ounce, but there was some notable joy and heartache in between. Here is my take on the year in review.
January 2014 began with gold prices stabilizing $1,200 from its precipitous 2013 fall from $1,700. Casting a pall over 2014 were analysts’ forecasts, led by Goldman Sachs, of $1,000 gold by the end of the year.
Starting in February, geopolitical concerns about Russia’s annexation of Crimea and invasion of Eastern Ukraine pushed gold up to almost $1,400 by March. Gold outperformed equities and was the best investment in the first quarter.
On June 4, Oklahoma voted to affirm that gold and silver is legal tender in that state, as provided by the Constitution of the United States. Oklahoma joined Utah, Texas, Arizona and Louisiana. Other states considering similar measures include Colorado, Georgia, Idaho, Iowa, Indiana, Kansas, Minnesota, Missouri, Montana, New Hampshire, South Carolina, Virginia and Washington.
In July, China’s anti-corruption campaign disclosed examples of prohibited practices, which includes gifts of gold bars, coins and jewelry to government officials. China’s gold demand proceeds to plunge 52 percent.
On Sept. 29, China established the Shanghai Gold Exchange International Board to compete with western gold exchanges. Frustrated that the West continued to dominate trading and gold pricing while the center of gravity for gold trading and purchasing has shifted to the East, the Shanghai Gold Exchange expanded to accept international partners.
October had three big stories. The Federal Reserve tapered its quantitative easing programs to zero that month. The market started to bake in the impact during the summer months running up to the end of the taper. Gold steadily declined from $1,340 in June to the year’s low of $1,140 in early November.
On Oct. 17, the London Bullion Market Association announced that the Intercontinental Exchange would replace the 95-year old London Gold Fix with an electronic exchange in early 2015. The Fix has been under scrutiny since February from regulators investigating collusive efforts by banks in areas such as LIBOR and Forex.
At the end of October, legendary former chairman of the Fed Alan Greenspan said that gold was probably a good investment given that, in his opinion, the Fed’s accommodative monetary policies “have not worked.”
There were three big gold stories in November also. The Netherlands announced that they had secretly repatriated 122.5 metric tons of their gold stored at the New York Fed. Azerbaijan, Ecuador, Germany, Iran, Libya, Mexico, Romania and Venezuela have also made requests of their custodians to have their gold repatriated.
Toward the end of November, India substantially reduced gold importation restrictions, which led to robust demand for gold during the festival and wedding season. The restrictions were originally imposed because India’s record gold buying created an unhealthy trade imbalance that threatened the rupee. That gap has since been narrowed.
And on Nov. 30, the Swiss gold referendum gained enough momentum to be put on the ballot and garnered 25 percent of the vote. The initiative would have required the Swiss central bank to increase its gold reserves from 8 percent to 20 percent of assets, to never sell their gold reserves and to hold all that gold in Switzerland.
December has had three big gold stories so far. Russia’s central bank added at least 150 metric tons of gold this year, which was consistent with the trend of central banks becoming net buyers of gold. When the numbers are tallied, India will likely take back its crown from China as the world’s largest buyer of gold. And finally, in spite of a sky-high dollar and oil prices collapsing, gold stabilizes at the same price it started out in 2014: $1,200.
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