Frederic Panizzutti, CEO, MKS Precious Metals DMCC, was optimistic about high gold price in the second half of the year. He also opined that $1100 will act as strong base for next 8 to 10 years while giving an interview to Bullion Bulletin during DPMC 2015. Excerpts…
If we see the price outlook in the beginning of this year, most of the analysts except one or two predicted that gold price will remain between $1050-1300. What is your view? Will it break through either of the range or we can see at the end of the year at least the closing price might be higher than 1300.
We forecasted the average price of $1285 for 2015. So far, what we anticipated, market has been behaving accordingly. We forecasted a low at $1150 which is exactly what we have seen so far. We predicted gold price to be weaker in the first half of the year but to strengthen in the second half of the year. The reason beyond our belief of gold strengthening in second half is that interest rates rise in the US could have a dramatic impact on the stock market. If we look at the stock market growth throughout the year and if you look at the real growth of US economy they are not inline; the earning are not in line with the growth. We believe that this growth is a result of pumping in lot of liquidity which was re-injected into the stock market. Now we might see a reverse effect when they start tightening the market again, we see people going into gold as a safe haven. We also see recovering economies to be benefited from gold; we expect China to be consuming more in second half of the year. Therefore we expect high gold prices in the second half.
Unlike gold, silver, PGMs are currently facing deficit in supply. But they are still shadowed by gold. We don’t expect silver, platinum and palladium to detach totally from gold until gold recovers. Once gold starts recovering we might see that gap widening; silver, platinum and palladium will benefit from imbalance of supply and demand that we are facing this year.
You just said about US interest rates, the factor for determining the future price movement of gold in second quarter of the year. Other than US interest rates do you think that physical demand in the Asian market will play vital role in determining the price?
Surely, impact of the US economy is more an indirect impact based on currencies, but the engine that is driving the physical gold price is definitely Asia now. Asia and India account for over 60% of the total demand. So definitely the key drivers and the key countries behind the physical gold price at least are India and China.
Dr. Desai was talking about Secular Stagnation, low inflation regime. How will it affect the price?
I fully agree what he said, this is also our view and always been our view. Everyone is saying inflation is positive for gold. Yes it is but double digit inflation. 2% or 3% is not inflation, it is normality. So we should not mix up between double digit inflation where people loose lots of purchasing power and buy gold to maintain purchasing power, that’s true. For single digit inflation we cannot call it inflation in terms of gold. As long as we are in the low interest rate environment where the bank account doesn’t generate the return you want, gold remains attractive.
Investors should continue to put their money on gold, do you think that it has reached almost its bottom. Now we can see in next 5-7 years time gold price will start moving higher.
I think we had this big move from 275- 800, 800-1800 which all happened in very erratic market fuelled by geo political tensions, economic problems. I would say the market for the last 6 years has been very unusual. We are now more or less reaching normality, we are building a very strong base around $1100 which we believe will be the pivot level for couple of years and solid base for the next 8-10 years. We heard that we should not expect inflation for next decade that we are in a different environment and we have to adopt our self into it. We heard that the mining industry is not investing into exploration because they would have to tighten the budget and we all know it extends to 20 years from the time it starts exploration, make findings, get license and get operational. Because it is not happening, we should not expect any major new mine in the next 10-20 years. On the other hand we will see a lot of underground reserves being exploiting and becoming less and less. We have seen publications from the major investment banks saying that if we see 30 years from now half of gold reserves would have been gone unless we make new findings. I would say if you look at a very short term the situation is still up and down. But looking at the medium and long term I think that gold will gradually move higher to adjust these few new factors.
According to your study, is there any visible impact of crude oil price movement on gold?
There is no direct correlation between gold and oil except when we got the big oil shock (in 1970s), that’s probably only time where there was a direct impact from the oil price on gold. They are not directly correlated but still they have similar long term pattern for a very simple reason. Those of them are assets that are purchased in US dollars. As stronger US dollar means more expensive oil or gold in terms of foreign currency, a weak dollar means less expensive gold or oil, this is why they have a similar pattern; their correlation runs to the US dollar value.
Your words about the conference
4th year of DPMC is most successful in term of audience 500 plus, it is still growing and amazing environment, and great venue well organized. I think that what has been achieved here is absolutely great and I already look forward for next year.
Disclaimer: Views are personal and not the views of the publisher.
Source: http://www.bullionbulletin.in/more_expert_column.aspx
