Will gold regain buyers' favor?

The consensus is that the price of gold will, at best, grind lower this year, as the support from loose US monetary policy gradually weakens. In contrast, with investor sentiment already heavily negative, our (Capital Economics') view is that the risks for the coming year are firmly skewed to the upside.

Looking back, 2013 was indeed a disappointing year for the price of gold. But since the first half was much worse than the second, it suggests the worst of the slump may be over. Between January and June, the price of gold dived from about $1,675 to less than $1,200 an ounce. In the second half, gold staged a partial recovery, rising to the $1,400 level, before dropping back to and finding some support at $1,200 again.

Admittedly, we had expected a much better performance. At the beginning of 2013, our forecast was that gold would rebound to a record high of $2,200 by the end of the year, helped by a renewed escalation of the eurozone crisis. We had anticipated some weakness as the US Federal Reserve gradually scaled back its asset purchases, but still thought gold would hold up well.