Gold Prices in 2014 Heading Toward Record High After Pullback

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Gold Prices in 2014: After two days of declines, gold prices were up today (Wednesday).

Gold Prices 2014Spot gold was last quoted up $12.40, or nearly 1%, at $1,293.20 on bargain hunting and short covering. Precious metal traders, however, remain guarded ahead of Thursday's European Central Bank meeting and Friday's closely watched jobs report.

Gold prices slipped Tuesday after encouraging U.S. economic data sent Wall Street stocks higher. Spot gold ended Tuesday's session down $5.40 at $1,280.00 an ounce, a seven-week low.

Pressuring gold prices Tuesday was data showing U.S. manufacturing growth picked up last month. Data from the Institute for Supply Management report showed America's manufacturing sector expanded for the tenth straight month in March. The news sent the S&P 500 Index to its seventh record high in 2014. The broad-based index rose 0.7% to 1,885.52, surpassing the March 7 record close of 1,878.04.

Monday, the yellow metal gave back $10.40, or 0.8%, to $1,283.40 on dovish comments from U.S. Federal Reserve Chair Janet Yellen. Speaking in defense of the central bank's easy money polices and historic low interest rates, Yellen's words drove investors to stocks and sent markets higher. Yellen reiterated the Fed still has more to do on the job front and said the U.S. economy still requires the central bank's support.

Despite Monday's drubbing, gold still managed to turn in a 6.8% gain for Q1 of 2014. That was handily better than the Dow's 0.7% first-quarter decline, the S&P's 1.3% gain, and the Nasdaq's 0.5% rise.

So, what's next?

Gold Prices in 2014: Long-Term Outlook

As global economies continue to recover, market participants are likely to favor risk-on equities over risk-off gold - near term.

But further out, industry experts expect the yellow metal to soar to new record highs.

Money Morning's Global Resources Specialist Peter Krauth gave us a more technical analysis earlier this year on why gold is headed higher long term - and is likely to close out the year on a gold gain.

And he's not the only one talking about gold's long-term value...

According to Boca Raton asset manager Pecora Capital LLC, gold prices could bottom out at $1,160 an ounce in 2014 as the dollar rises as much as 5%. But then the firm sees the precious metal returning to a new record high within five years as weaker stocks and strong Asian purchasing stoke demand for safe-haven gold.

Weighing most heavily on gold prices in 2014 will be a stronger greenback, Pecora's managing director and co-founder Aaron Smith told Bloomberg. But he's ready to buy on the dips.

"The opportunity to buy gold down to $1,160 for me is a gift," and the cost of mine production at about $1,000 an ounce "is your floor," he added.

With U.S. equities approaching overvalued territory and likely to slump when the Fed's stimulus program ceases, gold could initially slide as money shifts toward cash instruments, before the precious metal heads higher, Pecora said.

"The equity market expansion is purely a function of monetary policy," Pecora shared. "Growth is not inspiring, valuations are lofty. When there's a stop or contraction to the Fed's balance sheet, then you're going to see more than a correction in equities. They'll be a knee-jerk reaction where very temporality gold prices will drop and then they'll outperform."

And any drop in gold prices in 2014 will likely spur more gold buying - possibly topping these record numbers from 2013...

Gold Buying in 2013 Hit Record High

Gold's dismal 28% decline last year, it first annual decline in 13 years, left the yellow metal 33% below its September 2011 peak of $1,921.17. And while investors fled gold equities, retail customers flocked to the yellow metal.

Global consumers bought a record amount of gold in 2013. China and India led demand, but the United States turned in a solid showing for yellow metal jewelry, bar, and coin demand.

While demand has slacked off a bit in China and India, the world's No. 1 and No. 2 gold consumers, the taper is expected to be temporary. The two Asian nations accounted for some 53% of global consumer demand in 2013, according to the World Council. With gold now bargain priced, interest is growing, as Asian gold buying tends to pick up when prices decline.

Marcus Grubb, Managing Director of Investment Strategy at the World Gold Council, called 2013 the "year of the [gold] consumer." He said figures "demonstrate the resilience of the gold market and the unique nature of gold as an asset class, rebalancing to reflect the economic environment."

Indeed, the 2013 physical gold consumer market enjoyed 21% growth year over year, compared with outflows of 881 tons from exchange-traded funds. Moreover, annual global investment in bars and coins rose 28% to 1,654 tons, the highest figure since the World Gold Council's data series began in 1992.

"I think the demographics are going to heat up again for Asia in terms of purchasing gold," Smith told Bloomberg. "Gold is really very attractive with respect to yen from a medium to long term perspective" as the bank of Japan continues with unprecedented easing that began a year ago, he continued.

Japan's current account and fiscal deficits have spurred Japanese households, which had cumulative savings totaling 874 trillion yen at the end of 2013, to safe-haven, tangible gold. Bullion demand in Japan surged threefold in 2013, according to the World Gold Council.

Newly released precious metals news: Gold isn't the only metal that will reward investors - these charts show why palladium is one of the best bets to make today...

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