Gold price at a risk of prolonged downturn
Both in domestic and international markets gold prices are treading water. At the domestic front, gold on the MCX is hovering below Rs 26K level and in the international market it has fallen below USD1,350 per ounce.
In a special interview with Ajeet Kumar of Zeebiz.com, T Gnanasekar, Director Comtrendz, shares his views on gold price outlook, investment demand and various other aspects.
Q. We are currently in a down-trending precious metals market. Will the current weakness be sustainable?
After a twelve-year rally in gold, the corrective decline cannot be interpreted as a weakness. However, many week longs will get eliminated and since investors are holding gold right from USD 800 levels, even now it makes sense to book profits.
Q. Is there a possibility that 2013 will be the first year in the last 12 year when gold prices finish the year lower than when it started?
I think so. The way prices are behaving so far in 2013 makes me believe that there is lack of confidence in gold and it is very likely that it could close lower this year.
Q. Are gold prices in the process of hitting bottom? Do you think this is going to be a long-lasting bottom?
We could see a possible bottom either in the USD 1300-1375 range (Rs 25,000-500 MCX). With the long-term prospects still remaining good for gold, I believe bargain hunting will set in there and a recovery to begin from there.
Q. Have all positive fundamentals been factored into gold price?
I think we are past that. Gold prices did not react to the Israel conflict, North Korea threats or euro zone financial problems. This clearly indicates most of the positive fundamentals have been priced in.
Q. What range do you expect gold to trade in through the first half of 2013?
In the international markets I see prices moving in the USD 1200-1600 range for 2013. In MCX, it could be in the Rs 23,000-29,000 range.
Q. In your view, what are the three biggest downside risks to gold right now?
1. Fed downsizing the bond buying resulting in a stronger dollar 2. Crude oil prices lower resulting in less inflationary fears and, 3. Less investment demand interest due to lower prices.
Q. In your view, what are the three biggest upside triggers to gold right now?
1. Fed continues bond buying program beyond 2013
2. Euro zone problems and
3. Geo-political tensions
Q. What is your outlook for gold prices in the near-to-medium term?
The trend in the near-to-medium term will be weak and volatile. Normally, a 12-year bull run can see at 1-2 year decline, at least, till it recovers and turns around. So, in short-to-medium term, the underlying trend will be weak with bouts of on and off recovery.
Q. Do you believe gold is an effective way to preserve capital?
It is one of the effective ways to preserve capital, not the only way. Gold has definitely proved to be efficient way to preserve capital and statistics prove that gold has been an effective medium to preserve capital.
Q. Now, what's the best way to go about this? Do you think people should buy physical gold coins or ETFs?
I would believe that the long-term trend is still intact and buying small quantities into any big quantities declines like on Friday. One can buy both ETF's and coins or a combination of both.
Q. Is the yellow metal still a long-term investment?
Yes, it is. With central banks cutting rates and emerging markets like China still reeling under growth pressure, interest rates could go further down. All this is clearly inflationary in nature. But, for this inflation to make a big effect, it would take more than a year. So, long-term I am still hopeful for gold prices to rise.
Q. Are conditions underpinning the gold bull-run largely remain in place?
Not presently. As mentioned earlier, gold refuses to respond to the factors that normally underpins it. So, till it finds an attractive bottom, these factors might not play a major role.
Q. In this kind of depressed gold and silver market, it appears that the effect of negative news is magnified. Is that in fact the case?
That is the case when it went up as well. Speculative forces tend to exaggerate the movement on both sides.
Q. Is a deeper retracement or a rebound ahead for yellow metal?
A deeper retracement looks likely to me followed by a recovery but not necessarily a clear rebound.
Q. Has outlook for gold been dashed by its recent weakness?
Outlook remains positive for long-term, but sentiment is dashed and investors are bailing out currently.