Less than a month and a half into 2014, the original article said markets were already reversing course. At the preceding year’s end, equity markets were high after another positive year, marked by record closes for the Dow and S&P 500 of 16,576 and 1848, respectively. Gold and silver were among that year’s poorest-performing asset classes, losing 28% and 36%. As noted in a previous post, experts had issued their 2014 forecasts for gold, and those forecasts were not upbeat. The average projection called for a close of $1,209, ranging from Deutsche Bank’s low of $1,141 to HSBC’s high of $1,292. Although the year was still early, the article reported that HSBC’s bullish forecast appeared most accurate: gold had closed above $1,300 that publication day, its highest close in more than three months. The article went on to examine reasons for gold and silver outperformance and whether that trend might continue.
Jobs Data
Markets respond to many influences, but the original article described the monthly new-jobs report as one of the most important economic releases. It was presented as a useful gauge of economic health and growth. December’s report surprised much of the investment community because expectations were for 200,000 new jobs. Just days earlier, the ADP report had estimated 238,000 new jobs. Actual BLS data showed only 74,000 new jobs for the month, the worst monthly result in more than three years. Many investors attributed the weak report to weather and considered it an anomaly in an otherwise healthy, growing economy. Four weeks later, participants awaited January’s data and were again disappointed: January produced only 113,000 new jobs against forecasts of 180,000 – 190,000 jobs. The article said two weak months could signal a trend and suggest continued stimulus for the foreseeable future, a condition that had typically benefited gold and silver markets.
Political Factors
At publication, the House had reportedly agreed to raise the debt ceiling to avoid another debt-ceiling crisis and a possible default like the one experienced late in the prior year. The original article said the decision likely sought to avoid financial-market uncertainty, while also indicating that Congress did not intend to restrain national debt and annual deficits. With on-balance-sheet debt above $17 trillion, it argued that debt payments could remain serviceable only if interest rates stayed low. Higher rates, it said, would devote more of the national budget to servicing debt, resulting in higher taxes, reduced entitlement programs, or both. It also contended that a GDP-to-debt ratio exceeding 100% would devalue the dollar and support gold and silver markets.
At the time of original publication, the article described the following: Recent Economic Data
In addition to the January jobs report mentioned above, the original article said recent negative economic data had been extensive. During the preceding week, Goldman Sachs had lowered its first-quarter 2014 GDP forecast to 1.9%. December retail sales had also recently disappointed, with its biggest miss in a year and a half. Finally, new jobless claims had recently risen, moving claims back above their 8-month average. Coupled with the Federal Reserve’s recent reduction of monthly bond purchases from $85 billion per month to $65 billion per month, the article described a struggling economy receiving less Fed support.
Summary
At publication, gold and silver had made a stellar 2014 after being among the weakest asset classes in 2014. As of the original post, those markets were up 8% and 6%, respectively, while equity markets had begun roughly. Whether gold and silver would keep outperforming was described as anyone’s guess; nonetheless, the article viewed weak economic data and questionable political decisions as signs that 2014 could bring a difficult equity market and a substantial rebound in gold and silver. At the time of publication, readers were invited to “like” Atlanta Gold & Coin on Facebook and Twitter for our blog concerning economic and political influences on precious metals.
