David Lennox, analyst, Fat Prophets expects gold to rally in the time to come despite the massive fall seen in April 2013 on the back of the quantitative easing (QE) scare.
“We have seen jewellery demand increase quite significantly and even in industrial sector, there is a moderate increase in demand as well. The pressure from those two regions or sectors will certainly play to stabilise and perhaps increase the gold price in the future,” adds Lennox.
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Furthermore, Lennox says Brent Crude is likely to have a good year as the demand in China, US and Europe is likely to grow well.
Below is the edited transcript of Lennox’ interview to CNBC-TV18.
Q: There is a bit of a high on gold at USD 1,250 plus. Is this a time to take profit or is gold going higher?
A: We certainly think at the moment that gold price can still possibly breakdown through USD 1,200 and we do think that if it does that, it is a very good point in time when one would want to buy gold. The market is still looking to what is going to happen with QE and the time of tapering.
We have seen the first shots being fired in terms of the cutbacks and we did see the gold price react accordingly. So, that is going to provide opportunities in the near-term as the market does worry about QE. However, we do think on the other side of the fence that physical gold market is starting to make adjustments to this lower price. We have seen the moderation in production.
We have seen a collapse in recycling gold and we think that those trends will entrench themselves in 2014 and help support the price. The demand has also come into the market. We have seen jewellery demand increase quite significantly and even in industrial sector, there is a moderate increase in demand as well. Again, the pressure from those two regions or sectors will certainly play to stabilise and perhaps increase the gold price in the future.
Q: What about crude? West Texas Intermediate (WTI) has seen quite a bit of decline to around USD 91 now. How would you approach that?
A: The recent storm has certainly pushed some latent demand that was sitting back into the market. We probably saw something like 3-4 million barrels of demand disappear as that storm affected the northern part of the US. So, that certainly had an impact of pushing the prices down.
There had also been the effects of perhaps what is going to happen with Iran returning to normal production in due course and also some of the other fields in Iraq and Libya perhaps returning to normal production that we have not seen for sometime. So, that has certainly put downward pressure on the NYMEX price and we have seen it also fall.
The Brent price has been a little more insulated from a lot of those. Brent remained relatively more buoyant and is currently trading around USD 106.90 level and we think that there is no reason for those two movements.
Q: So do you expect Brent to bottom out here and move up? What is your forecast for Brent?
A: In 2014 we have kept our higher price that we had for 2013 at USD 120. We cannot see the market wanting to break beyond that, unless there is some significant geopolitical supply shock event and we will not forecast that.
We think that the lower price that it will finish at at the end of 2014 is somewhere between about USD 110-120. So, we would really be expecting perhaps just a moderate rise over 2014 for the price of Brent. We will start to see a better demand picture out of China. US will be the same and even Europe may by that time be just showing a little improvement and we think that is going to be quite good for the Brent price over 2014.