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Gold is about to end the year marginally lower. That’s not bad, given that the year was one of the toughest for the metal. The ending of the Federal Reserve’s monetary easing, rally in the US dollar to a five-year high, rout in the oil market, new highs in S&P 500 index — gold had to face it all in 2014.
Outflows from gold-backed exchange-traded funds continued, but the pace was much lower than that witnessed in 2013. The US SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, saw its holdings drop by 10 per cent to 725.75 tonnes. In 2013, the fund lost about 40 per cent of its assets.
Gold jewellery consumption was down (by 10 per cent in the first nine months, according to the World Gold Council) with India and China — the two big markets for gold — witnessing contraction in demand. In China, the economic slowdown and the anti-graft campaign by the government kept a lid on demand for all luxury items, including gold.
The odds
It started in June with the ECB announcing measures to check deflation. The news sent the euro into a tailspin and in a month’s time the euro-dollar rate slipped from 1.37 to 1.33. The US’ economic fundamentals too improved in this period. The country’s economic growth revived from a negative 2.1 per cent in the March quarter to 4.6 per cent in the June quarter. And as the September quarter GDP figures too were equally strong, the Fed was able to close its asset purchase programme as scheduled in October.
This started the next leg of the rally in dollar as the market started to price in the rate hikes.
Gold’s attraction as an inflation hedge too dulled in the year with the rout in commodity prices, especially, oil (down 45 per cent).
Bad year for India
Lady luck did not help Indian investors in gold either. At a time when gold prices in the international market were up (January-March), the rupee appreciated against the dollar and eroded investors’ gains. Later, when the rupee dropped against the greenback, gold prices in the international market also slipped, not leaving any gain on the table for Indian investors. In rupee terms, gold is down 8 per cent this year.
2015: What lies ahead
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