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Sep 13, 2010, 04.51 PM IST | Source: CNBC-TV18

Commodity Broking sees 10-15% correction in gold ahead

In an interview with CNBC-TV18, Jonathan Barratt, MD of Commodity Broking Services, spoke about the emerging trends in the commodity space and his outlook.

Jonathan Barratt, Commodity Broking

In an interview with CNBC-TV18, Jonathan Barratt, MD of Commodity Broking Services, spoke about the emerging trends in the commodity space and his outlook.

Below is a verbatim transcript of the interview. Also watch the video.

Q: There seems to be some very strong growth impulses re-emerging in India as well as in China. So one would assume that the eastern piece is looking better than forecast. Will this start beginning to rub off on commodities? Are you going to see crude being able to break its recent caps of USD 85 per barrel?

A: I think that is going to be the very interesting point. We do have that divergence in economic growth between the west and the east and with those numbers particularly out of China, we had over the weekend, it sort of concludes in my mind that the East is certainly leading the global economy, as we know, as a result of that those primary inputs, particularly oil, some of them which they need. Given that I think that could give us a bit of a push for oil to test the topside.

I am not sure whether or not we will get back upto USD 85 per barrel but I can certainly see because we are in the range that it could test that USD 80 per barrel.

Q: What is the reason that you are bearish on gold?

A: I think that is interesting. Gold certainly had a terrific run. There is no problem about it. We had issues on inflation, which is not very high in terms of lot of the economies. We are seeing people move away from those risk reversion trades, so they can get their money back into the market because it seems that those equity markets and those other commodity markets are moving.

So I guess when globe starts to even out, risk reversion will be taken away. As a result of that gold will probably fall because that is where we had that flight to and if that is the case then gold probably won’t head through that USD 1,265 per ounce for sometime and probably I would see those who stayed longs actually exiting the market and see a correction.

On the size of the correction—at the moment I am looking between 10% and 15% but then we will have to see what happens after that.

Q: You clearly advised profit taking in gold at this juncture?

A: Yes, I am looking to take profits in these areas. I would reassess my position if we do get through USD 1,265 per ounce. But I think any rally towards those areas—remember we have been up here for about 2-3 times already and failed to get through and I feel that the climate is not there for a push through—but naturally with gold if it breaks through there, it is going to be some reason why. So we have to reassess. So taking profits in gold in my view is probably the correct thing to do at the moment.

Q: What about copper and aluminum? One would assume that the same logic that goes for crude goes for these as well and maybe more so because of the requirement for building material?

A: You are 100% right there. In fact little bit more for base metals in particular copper and this is interesting too because copper is a metal that is in a structural deficit in terms of where the demand—we don’t supply enough for demand and as a result of that we are trading at about 15% half past monthly highs. So I think that if we get that encouragement out of China, which we are seeing and we certainly getting that out of the Obama administration with Barack Obama saying the economy is going good.

So if we get that confidence running through those two markets, number one and number two economies in the world, then you can see bit of a squeeze developing on copper. So I feel that any dip in copper will be short-lived but I would certainly weight my portfolio towards being long copper on any dip I am certainly a break to new highs.

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