(Gold has managed to buck)

MUMBAI: The year 2013 was a forgettable one for gold investors as they watched the precious metal sink 27% after a remarkable bull run lasting nearly a decade. When prices reached $1,200 levels some time last year, most experts predicted that the gold rally was over.

So far this year, those predictions have not turned out to be exactly right. Gold has managed to buck the trend, rising 10.4% year to date as emerging market economic weakness combined with rising geopolitical tensions revived its status as a safe haven.

Gold investor and strategist Eric Sprott, who has steadfastly refused to buy the theory of erosion of investor faith in precious metals, and has instead alluded to central bank manipulation as the reason behind the 2013 price fall (read his post at www.zerohedge.com on January 17), is today more bullish than ever about gold. The price of gold and silver will both hit new highs in 2014, he said in a blog post on January 9. The price of gold goes north of $2,000, and silver will quickly go over $50. When it does, it will get a little crazy.

Gold’s rise this year, which has not been as spectacular as its proponents think, has been aided by strong demand and geopolitical spats in the Pacific Ocean and Crimea.

Russia sent troops into Crimea over the weekend and appears to be slowly increasing its stranglehold on the strategically located peninsula. China and Japan are locked in a standoff over islands and in comments that reverberated around the world in January, Shinzo Abe, the Japanese PM, compared the face-off to UK-Germany rivalry before the world war.

These tensions could keep gold on the boil in the next few months but what is really causing concern among economists and traders is the weakness in the Chinese economy and signs of an apparent softness in the US economy. Bloomberg reported on Monday that hedge funds increased the bullish gold wagers to the highest in 14 months on worries that the US recovery may be stumbling. China, it is feared, is possibly in the midst of a sharp slowdown and the government appears to have its hands full, fighting fires on all fronts including currency and local demand. The yuan is weakening and growth is slipping.

So where does this leave India, one of the biggest gold importers? Not in a very good position from the looks of it. Finance minister P Chidambaram fought off a current account deficit crisis last year by slamming the door shut on gold imports. Those restrictions (an increase in duty to 10% and a ban on imports of gold coins) have served their purpose well and the rupee has been remarkably stable so far.

  Many experts have said that the time has come to remove those restrictions.

The government is playing it cautious so far, afraid that it will be swamped with imports despite the recent price increase. This government is unlikely to take a call on the issue. The new government, to be sworn in by end of May, will probably have to bite the bullet on this one. The trouble is they will be damned if they do and damned if they don’t.

Cut duties back to pre-May 2013 levels and you risk increasing demand, widen the deficit and possibly spook the rupee. They can’t afford that. Maintaining those levels beyond the next few months will serve no purpose at all except to increase smuggling and the misery of thousands of families dependent on gold for their livelihood.

Those who thought that the tyranny of gold ended with its slide last year, think again. This will be the year of gold.