Is gold headed to $1,000 per ounce in 2014?

Despite a strong start to 2014, not everyone is confident that gold’s troubles are over.

Tom Kendell, the head of precious metals research for Credit Suisse, told CNBC last week that he thinks the price of gold could drop to US$1,000 per ounce this year. If it does it would have a big impact on Australia’s listed gold miners including Newcrest Mining Limited (ASX: NCM), Evolution Mining (ASX: EVO) and Northern Star Resources Ltd (ASX: NST).

There are several reasons driving Mr Kendell’s view that gold’s recovery is set to come to an end.

1. Systemic risk has reduced

Remember when Greece and Spain were on the verge of economic collapse? These events were a risk to the global economy which sent buyers flocking to gold to protect their wealth and drove demand for exchange traded funds specialising in gold.

Now that the storm has passed investors are more focused on high-yielding investments rather than preparing for financial Armageddon, reducing demand.

2. Funds are not jumping back in yet

Mr Kendell sees gold funds as a major driver of gold demand and they are yet to resume buying. Kendell says the flows seen so far this year have been covering short positions which were betting on further falls in price rather than adding to ‘long’ positions which bet the price of gold will rise.

3. Rising real interest rates

Improving US economic conditions are expected to drive an increase in interest rates which make interest bearing investments like bonds and stocks more attractive than gold. Higher interest rates can also (theoretically) reduce the likelihood of inflation as people borrow and spend less, reducing gold’s demand as a safe haven.

4. Plummeting demand from major buyers

Credit Suisse also notes that India’s gold imports have plummeted in response to strict government regulations aimed at stabilising the country’s currency the rupee, while central banks have not bought more gold in response to falling prices in November and December.

Foolish takeaway

When it comes to the price of gold, ten different professionals will have ten different opinions. Hedging his bet somewhat Mr Kendell said he wouldn’t expect the drop until the second half of 2014. Time will tell if his assessment is correct, or merely another opinion.

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Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article.

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