In US dollar terms gold fell 28% in 2013 and in Euro terms gold topped out in September 2012 at just over €1380 before falling back to the €900 area by December 2013. Silver did even worse and while it has been as high as €34 euro in 2011 by the end of 2013 it was breaking below the €15 level. All of this has happened while the Federal Reserve was fully engaged in QE3 and pumping billions a month in government debt and mortgage backed securities.

In contrast to the poor performance of gold and silver in 2013 the stock markets had a great year and the US property market showed real signs of life. Both of these markets relied almost entirely on the Federal Reserve’s money printing to make headway however, as Bernanke felt that driving momentum in property and stocks was key to US economic recovery. Ironically precious metals got hammered as the Fed’s QE program drove investors to follow momentum in equities and real estate. Furthermore, analysts pointed out that a taper was coming at the end of 2013 and this compounded poor sentiment in the metals markets.

But since the start of 2014 when the Fed has actually started the tapering process equity markets have stalled and metals prices have moved up quite strongly. The economic data over the December January timeframe has been generally below expectations and this has been explained away as a result of poor weather conditions. However we believe that the US economy is set once again to underperform dramatically over 2014 as the Fed tries to reduce QE and that the current weakness is not just a temporary blip. Since we believe that money printing was the prime driver in equity prices last year we also predict that equity markets will go nowhere this year as the Fed tries to bring its balance sheet under some control through the taper process.

If the stock market stalls out this year then we also expect to see some weakness in property prices in the US as a consequence of the attempted taper. General weakness in the US economy will be more difficult to explain away as spring approaches (doubtless many manufactured explanations will be made however!) and this lack of momentum on the general economy, stocks and property is likely to swing the pendulum of momentum back in favour of the metals. Unless a ‘black swan’ emerges gold and silver are likely to make consistent progress back to higher levels and erase much of the losses from last year. However if a ‘black swan’ event was to occur (e.g meltdown in derivatives markets…) gold and silver could both move rapidly past their previous highs in this cycle