The Hindu Business Line : Limited downside to gold

Mumbai, Dec 31 After 27 years, gold made its mark again in the year gone by, as the safe haven metal revisited the $850 an ounce price point that was reached the first time in 1980. While the story of glory of the precious metal does not end here, Mr Paul Walker, CEO of GFMS, told Business Line in an interview that gold will march towards $900 in the next six months and downside the yellow metal is limited.

What will be the whereabouts of gold in the first half of the new-year?

In the next six months time gold prices march towards $900 an ounce is strongly on the cards. If the sub-prime crisis becomes manifest, $1,000 an ounce price of gold is yet not ruled out. On the downside $750-760 is where the low will be. The mid $800 is also a potential average price for gold in 2008. Although, the downside risk is limited with only $40-50 dip in price. There is a bigger chance in our view of higher prices than lower prices. What does the market perceive for gold in the year 2008?

Currently, there are mixed messages on the financial systems and economic conditions floating around. The market is making judgment on where the US economy is going. As a result the metal would see continued volatility.

These massive uncertainties over the US drama will prove to be a positive investment climate for gold going forward. This will be so as lack of other viable alternative investments to dollar exposures would bring interest in gold investments.

What is the view of GFMS on the US economy?

Out house view at GFMS is that the US economy is not already in recession but will move into recession in the first half of 2008. Returns on investments like US equities and bonds would be lower in dollar. There will be substantial foreign exchange loss for a US based investor. The capacity to reduce interest rates is less.

What is your take on the Rupee and how will it play on the Indian bullion market?

We at GFMS see the rupee appreciating to Rs 35 against the dollar this year. The rupee gold prices will not increase as much as the dollar gold price. Dips in the Rupee gold prices will be more pronounced. As the rupee gold prices will fall, the Indians will wait till they meet what is perceived as the low and this will take out some buying from the Indian market. However there has been a secular increase in the Indian gold demand. Downside risk is limited to $750 an ounce and will quickly be eliminated by physical buying in India.

The Indian stock market has also been on a bull run. What impact will this have on gold?

In the short term it will have a negative impact on gold. Potential returns in the stock market in a day would be 3- 4 per cent, which is unusual for gold. This will draw away investible funds into the stock markets. But, thereafter, investors will feel the need for wealth preservation and that’s where gold will come into play.

More Stories on : Gold & Silver | Interview

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page