Commodity gurus say gold's bear run to last couple of years

The 12-year bull run in precious metals has finally come to an end. Globally gold declined with spot prices falling below USD 1,400 per ounce on panic selling. 

T Gnanasekar of CommTrendz Research told CNBC-TV18 that decline in prices was always expected, but the degree of fall is quite surprising. He believes for a market, which has rallied for 12 years, a correction could last for a couple of years. However, within the correction there could also be retrenchments, he adds. He feels that getting extremely bearish at this point in time is not the right strategy. "On rallies one can look to sell, but overall the trend is certainly weak", he added. Kishore Narne of Motilal Oswal Commodity is targeting gold at USD 1,280 per ounce. Given that the rupee will be constant, his call on domestic gold prices is around Rs 22,000 per 10gm. Below is the verbatim transcript of his interview to CNBC-TV18 Q: Is this fall in gold for keeps, do you see a huge V-shaped bounce back at all or do you think that whatever recovery will be sold into and we are going to see lower levels? Gnanasekar: I would go with a theory that at this point in time any recovery would be sold on to. The usual fundamental drivers, which normally drive gold prices like the safe haven element; when euro zone problems crept up again and the North Korean threats happened, gold did not react at all. Therefore, this fall was in the offing, but the degree of fall is quite surprising. My sense is right now the whole thing is overdone, margin calls getting triggered increase in further panic selling. So, market sort of tends to find some support at these levels. I think there could be a recovery in the offing at least for a couple of days. Q: Where does gold head from here? Is USD 1,360 per ounce worse than your expectation? Will we get even lower levels before 2013 is out? Narne: We were targeting USD 1,280 per ounce. USD 1,280 per ounce is pretty close so it is not a big deal maybe one might see USD 1,280 per ounce coming in couple of months. However, one thing is for sure that for the entire 2013 or maybe till mid-2014 we do not see any major rally in domestic gold prices. Here a lot of people are missing that. The correction in gold in global markets has been started very long back, in 2011. Close to the last couple of months of 2011 we made a high of USD 1,937 per ounce and after that gold has been into a corrective phase in global markets. Therefore, the correction has not come in domestic market just because it is only a depreciation of rupee. This has kept the domestic prices high and we have made an all time high as recent as in November last year. So, globally the correction has started long back. The only momentum has caught up just before the breakdown of a couple of technical levels like USD 1,540-1,500 per ounce levels, which made people to rush for exits. In domestic market I feel that we have just started a major correction. Though we are down almost 20 percent now from the top, we still have to discount the impact of fall in gold prices in global markets as well as the impact of crude prices on our trade deficit number and impact of reduced fiscal deficit because of the reduced subsidy burden. So, the rupee appreciation cycle is going to be a big cycle from here. My call on domestic gold prices would be around Rs 22,000 per 10gm given the rupee will be constant. However, if rupee appreciates towards 50/USD and that is what my call is towards December 2013 then the domestic gold prices would have a further hit from here. Therefore, if one assume 10 percent appreciation in rupee, would add another 10 percent fall in domestic market. Q: How soon might domestic gold prices hit Rs 22,000 per 10gm mark and even if it does come you will not recommend investors to accumulate gold or buy gold? Narne: Investors’ interest in gold should be driven by the potential returns it can generate. Therefore, I would feel that after 10-11 year rally, there is normally two-three year correction, which is a 30-33 percent of the time, which has rallied. So, if one third of the correction takes place the domestic gold should correct for at least a couple of years. In that sense I would suggest that probably one might accumulate gold close to Rs 22,000 per 10gm or maybe slightly lower to that. However, I do not expect too much of returns in the next couple of years. Probably one might be getting 5-6 percent or maybe less than 10 percent kind of returns from there. But it would take pretty long time to come back to old levels of Rs 30,000 per 10gm or more. Q: Would you concur that domestic gold prices are likely to head lower to levels of Rs 20,000-22,000 per 10 gm and thereafter there is not much upside for gold prices in the coming two-three years? Gnanasekar: I would agree with the fact that for a market which has rallied for 12 years, we could see a correction, which could last for a couple of years. However, within the correction there could also be retrenchments. So my feeling is that getting extremely bearish at this point in time is not the right strategy. On rallies one can look to sell, but overall the trend is certainly weakened. At this point in time it looks like this could last for a while.
 
Q: What can a bounce take it to? Does it get to USD 1,500 per ounce; does it get to USD 1,600 per ounce? Gnanasekar: My feeling is that it will not be able to cross USD 1,500 per ounce levels because that is where the major selloff started. That would tend to become a strong resistance point now. Therefore, anywhere close to USD 1,500 per ounce, market would tend to again start selling from there.