There is no fundamental reason for Brent crude prices to be higher on a sustainable long-term basis, says Daniel Morgan, Global Commodity Analyst, UBS. Geopolitical concerns and what is happening in Egypt and Syria have led to the premium, he says.
Morgan says fundamentally gold is an inflation hedge and there is not a lot of inflation in developed economies, which undermines the case for gold prices rising further. He has a long-term price of about USD 1,100/ounce. Below is the verbatim transcript of Daniel Morgan’s interview on CNBC-TV18 Q: It has been a strong run on Brent crude. How much more of an upside do you see from this level of around USD 110 because of geopolitical concerns?
A: As you mentioned geopolitical concerns and what is happening in Egypt and Syria has led to the recent premium. This is something that I would not tell people to get to buy long-term, these are short-term issues to drive premiums. There is not a fundamental reason for the prices to be higher on a sustainable long-term view. I would look for hopefully things to be resolved overseas and for some of those premiums to be brought back out of the market. Q: What about gold? It was a surprise move that we saw gold moving towards USD 1,370 and thereabouts. Is there more to go or will dollar weakness be short-lived?
A: There has been somewhat of a relief rally after the correction that we saw. That has benefited some people but fundamentally gold is an inflation hedge and I look around the world right now and I do not see a lot of inflation in the developed economies and we have just had announcements in the past few months about the United States starting to pullback on Quantitative Easing (QE). So this undermines the case for gold. Q: Are you recommending to your investors that they sell at current levels?
A: I would think that gold on a fundamental long-term basis depreciates somewhat from here. We have got a long-term price of about USD 1,100/ounce with a reasonably stable fall in price outlook.
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