The Gold Report: Please briefly provide us with a “State of the Metal” address for gold as summer approaches.
Björn Paffrath: We still could have difficult times over the next months before another bull market starts. The latest rally didn’t really unfold the way we were hoping. We had a great January and everybody was optimistic again, but then a strong dollar and booming equity markets brought gold further down. We still are in a bear market, in our opinion, and if the market goes up we would see it as a bear market rally. We don’t expect gold shooting through the roof at least until 2016, because there are things you can’t just ignore.
The U.S. dollar remains strong because half of the world has debt in U.S. dollars. Then there is the obvious seasonality in gold demand, which tends to weaken the price. And based on U.S. economic data, (small) interest rate increases are still ahead. Then we could see Venezuela and Russia forced to sell their gold to halt runs on their respective currencies; that would briefly oversupply the gold market. Also, of course, as long as there is liquidity in the S&P 500, the Dow or Germany’s DAX, that will keep investors in the broad market. The gold price is still shaking out and has more downside risk than upside potential over the summer months.
TGR: What role does China play in terms of gold demand?
BP: Chinas demand is one of the most important factors, but I would also include India. Together they are THE key players in the gold sector. Despite the overall negative sentiment, we see some positive signs, especially at the Shanghai Gold Exchange. Since 2009, gold deliveries from Shanghai …read more