Gold may fall to $1450/oz in medium-term: Fat Prophets

Global commodities tumbled on Tuesday with gold falling to a ten-month low at USD 1550 an ounce. Gold could fall to USD 1,450 per ounce level in medium-term, says David Lennox of Fat Prophets in an interview to CNBC-TV18.

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Lennox feels Brent will be trading between USD 92-120 per barrel for the remainder of this year. In case of West Texas Intermediate (NYMEX), he expects a range between USD 70 to USD 95 per barrel. Below is the verbatim transcript of David Lennox’s interview on CNBC-TV18 Q: What do you think of the fall that we have seen in gold and how would you approach it now? Is this a good time to buy or would you be cautious?
A: In this environment, you would have to be a little cautious. Around USD 1,530 per ounce level, there is a crucial support level that gold may test. If we can see a support for gold prices at around USD 1,530 per ounce level, then it will probably form a base. But what we think will be a fairly subdued rally going through the remainder of this year. If gold prices break through this level, we could see further weakness. Putting a floor on it is somewhere in the mid USD 1,450 per ounce region. At the moment, it is right at the inflection point where gold could move in either direction. Q: Do you think the Bank of Japan’s (BoJ) announcement that it is going to purchase 50 trillion Yen of Japanese government bonds is responsible for that impact on the market?
A: When the US Federal Reserve does a lot of note printing, we see that reaction in gold, because that has a direct impact on the US dollar. However, when other currencies and other banks do it, the impact is less direct because that action has the impact on the Yen. It then has impact on the US dollar. The relationship is probably not as direct.

Even though we would expect the US dollar to rise against the Yen, it would not put pressure on the gold price to fall. The US dollar and the Yen relationship, because of the actions of the Japanese reserve bank to print more, would have detrimental impact on gold rather than a positive one. Q: The reserves announcement by the US was further bearish for crude. How do you see both varieties of crude? Do you see the trajectory lower with crude moving below USD 105 mark at all or do you think this is it and we are going to see a solid support at USD 108 level?
A: The current crude prices for both Brent and West Texas are at crucial points where market factors that have been driving them in the near-term have been on the positive side. We have seen the prices of crude and Brent rolling up just a bit. However, as we saw the announcement of job numbers for the US, where they came in at slightly less than consensus, it was an indication that perhaps the US is not growing as rapidly and oil reacted very quickly to that.
We also had the Energy Information Administration (EIA) Report showing that the US inventories are now at record levels. So the oil markets took both of those as an indication that the US consumption is still very weak. When you add the production of US crude which is now rising, we have seen that impact on the oil price. We saw that flow quickly to the current prices that fell away rapidly. Q: If you had to give us a range, what would it be both on Brent and NYMEX?
A: At the moment, we are holding our forecast ranges. Brent will be trading between USD 92-120 per barrel. We are fairly comfortable with that level for the remainder of this year. For West Texas, we are looking at a range between USD 70 to USD 95 per barrel. So, we would be expecting factors that would lead to a little more weakening impact on the crude price rather than a positive.