Juerg Kiener, MD & CIO, Swiss Asia Capital, says that China is very aggressive in accumulating investments in gold space in Australia and Africa. He is of the view that next six months will be very good for physical gold investments. He feels that gold will touch USD 3,500 an ounce by 2013. He expects mining stocks to give a return of 50-100% by next year.
Below is the edited transcript of his interview to CNBC-TV18.
Q: Do you think gold is now losing its sheen? What is your view on the comments made by the World Gold Council?
A: We have seen a slowdown in jewellery demand due to weak global environment. The real demand is coming from the central bank if you look at the import transfer of gold from Hong Kong into China. This is where the World Gold Council has been asleep.
In the first half of the year, 350 tonne of gold was imported. The official numbers stands at 750 tonne a year. So we are not seeing a slow down. China is very aggressive in accumulating investments in gold space in Australia and Africa and the Barrick story hitting news. The Western world which is still facing economic hardship will see more stimulus and debasement of money.
Gold is on good bottom building in the US dollar. In many currencies gold wants to breakout on the upside. Next six months will be very good for physical gold investments.
Q: How much upside are you expecting in gold? Currently it’s trading at USD 1,600 an ounce. Are you looking at 10%, 20%? What could the upside be restricted to?
A: By first quarter of FY13 gold may touch USD 1,900-2,500. We expect the whole debasement story of the West to accelerate and gold to touch above USD 3,500 an ounce by 2015.
The silver market is more exciting and we expect double returns that we were to get on physical gold. The mining stocks have corrected heavily during this consolidation phase. The index is down by 50% from the peak. So the returns will be in the range of 50-100% by next year. One should concentrate and buy physical gold; exit ETF and paper gold.
Q: In next 12 months which is more lucrative opportunity – gold or silver?
A: We are in the phase where the next round of debasement will be similar to the debasement story we had between 1978 and 1981. In that period the gold moved up six-fold in three years. Our target is threefold rise in gold in the next three years which is half of 80s. I think it could overshoot that target and is not aggressive. They are in line with what we expect on the macro environmental side and Western economies.
Q: What is your view on the big crude move? Brent crude is at a 3-4 month high and it worries markets like India. At USD 116 a barrel do you think it's topped out or is there more to go on the upside for Brent?
A: We still don't see huge supply coming on-stream. The demand is reasonably firm and the world is growing at 1-2% a year, which is quite consistent. The gap between the European and North American oil prices is narrowing.
This trend will continue till the wildcard remains in the game. What happens to the Middle East? The only wildcard which we have right now, is increasing of food prices rising, particularly corn. Around 40% of US corn production is used for ethanol and a decision on taking some of its subsidy and the ethanol production out of the market will boost the energy market even further.
So the political decision on, how much ethanol production? still has to be online in United States is yet to come. So we have two wildcards which are underpinning higher prices.
Q: What range would you work with for Brent in immediate shorter term?
A: We had a long consolidation between USD 90 and USD 120 for a long time. I don't know for how long this consolidation will last. When it breaks, it will break on the upside.
Military conflict in the Middle East or anything on the supply side in major terms is major triggers. As long as economics recessionary environment in the West continues to be headlines, there is little room for crude to break on the upside.