After treading water for most of the first half of the year, gold may have finally found its legs

After last year’s dramatic fall in the gold price, precious metals enthusiasts were hoping for an immediate bounce upwards – which never came.

However over the past few weeks the price has crept steadily higher and is set to provide strong gains over the second half of 2014.

Gold’s perfect storm comprises of three elements:

1.Continued economic weakness

Recent disappointing US job numbers, a shrinking German economy and frozen wage growth in the UK have provided a catalyst for gold. With a rise in UK interest rates now postponed until next year, Sterling weakness is pushing the gold price up for UK investors as its base price is in US Dollars.

This provides a double whammy for British gold buyers: The underlying price rising with safe haven demand, combined with further gains in Sterling terms due to a weakening domestic currency.

2.Middle East unrest

Political instability leads to a flight to safety, directly benefiting the gold price. With growing unrest in Iraq and Israel/Palestine, the cost of military involvement will fuel the safe haven appeal and increase the US deficit. Just as importantly, economic sanctions against Russia for the crisis in Ukraine could yet impact global growth, especially as Russia retaliate by pulling funds from the UK and US.

3.Sub-continent push

Finally, autumn tends to bring the usual seasonal push for gold in response to the huge spike in demand from India in time for its wedding season. There’s no guarantee that this will push gold higher in Q3 but it does seem to 9 years out of 10.

Batton down the hatches

With all three elements working together, we should finally see sustained growth in the gold price, especially in Sterling terms. So strap yourself in and don’t be tempted to sell if there’s volatility along the way.

This piece was originally published on the Physical Gold blog here.