Brent to hold $100-120/bbl range; bullish on silver: Kiener

There has been a severe fall in crude prices over the last few days and Juerg Kiener of Swiss Asia Capital believes it is due to the weak economic fundamentals all over the world, in countries like US, Europe, India, China and Japan. He believes the geopolitical situation to continue supporting crude and Brent crude is likely to range between USD 100-120 per barrel in the near term. Moreover, he does not foresee Brent rising above USD 120 per barrel over the next two to three years.

Kiener further added that a top asset choice will be food related commodities. Currently, he is bullish on silver and expects a short squeeze in the metal. Here is the edited transcript of the interview on CNBC-TV18. Q: The severe fall we see in crude, where do you see crude ranged? Where might it find a bottom? As well a parallel theme that some people were talking about, the first two doses of quantitative easing saw a significant rise in crude prices, almost 50% after QE1 and maybe 30% after QE2. Will QE3 have less of an impact, because at this point in time emerging economies like China and India are rather downbeat?
A: We are going to reprise commodities and oil because of QE and I think you have seen it running quite sharply after last week’s announcement of QE3. We have seen a setback on that. As you said, it’s due to quite negative economic growth numbers we get out of the US, Europe, India, China and Japan. But, in return of all these weak economies what we see is more QE, more stimulation and you see that even being announced in India, for opening up the market.
You see it in Japan in the special budgets and we are going to get even more stimulation, basically bring it back up. One of the key factors which is heating up and which a lot of people aren't really aware of is the war drums in the Middle East are getting louder and I think each time the price comes back down, it's a buying opportunity. I don't see the conflicts in the Middle East disappear anytime soon. Q: Just wanted to concentrate on the sudden fall that we have seen in crude. What would you attribute that 7.5% fall that we have seen in the past three days and do you think that is just an aberration? What would be the average level for Brent crude that you would see going forward?
A: The Commodity Futures Trading Commission (CFTC) has an investigation that's factoring a call out there. There is huge volatility. Governments are quite keen to see prices lower. So we are going to get volatility which is quite excessive in the paper market nowadays. But, I wouldn't be too much worried.
I think Brent will range between USD 100-120 right now and it looks pretty good. At USD 105 probably people should be buyers and if you break USD 120 on the upside due to geopolitical implications, we are going to change the trading range. But I don't think we are going to fall below USD 100 range. Q: Do you think USD 120 will be touched?
A: We are looking at much higher levels going over the next 2-3 years. As the slack in production and quality of oil becomes an issue, the geopolitical trades and delivery becomes an issue. People are looking at higher margins going forward. Q: I was looking at a slightly shorter term. If you were looking for the rest of 2012 or maybe the next 12 months where would you pitch crude? Would it average at around USD 115? Would it average closer to USD 100 or does it go beyond USD 120?
A: I would say we are going to be well above USD 120.
_PAGEBREAK_ Q: What about a few other commodities? What would your view be on gold? Do you think that we are going to touch those highs of around USD 1,900 on gold or do you think that they are going to be pretty much rangebound between this USD 1,700-1,750 level?
A: The support which we had, USD 1,525 has been touched half a dozen times at least. We have done a decent rally out of that. We are correcting a little bit after this QE announcement. I think we are going to start tracking higher.
Government interventions are not going to be sufficient to take on the new flow of money which is joining the party. The new flow of money is going more physically. It’s actually taking physical off the market and is squeezing the exchange.
We hear more and more problems, particularly in the silver space on delivery issues. We have seen the outstanding contracts going along and we see the shorts being dramatically under pressure. So gold might trade somewhere up into next spring, maybe USD 2,100-2,500 and for silver we are looking well above USD 50. Hence, your best bet right now is the silver market. It certainly looks like it's ready to be squeezed higher. Q: As a fund manager what would be your top three asset classes? We are going to get this USD 40 billion of asset purchases by the US Fed over the next several months. Where would you see this cash going in, your top three asset classes at this point for the next six months?
A: I think the total QE globally is going to be probably of about USD 2 trillion over the next two years. We are going to see people, we are going to look at basically protecting their wealth in the easiest way and that is going to be with physical gold.
We tell people basically to sell exchange-traded funds in gold, buy physical and remove it from the market. That's debasement, but the biggest returns will most likely be achieved in your daily need base and that is going to be food. We are very bullish over food for the next 12-18 months, particularly agriculture, investments into grain sector and we are very bullish on the silver market because there we see that the leverage in the system is just about ready to break.
That's the two largest bets for us. Then we are looking at special situations like rare earths and uranium which is 85% down. If you look at the stocks from the peak in 2011, despite the fundamentals improving dramatically these niches offer fantastic investment opportunity, particularly on the mining side. Q: As of July you had advocated that around 30% of your portfolio should be in physical gold. Considering that you are seeing further upside in silver, have you made any changes in terms of how much you would possibly recommend to investors in terms of allocation towards physical precious metals such as gold and silver?
A: I think the risk appetite for silver is bit too high for a lot of people and the volatility side to the market is small. In our case, we have in our energy mining fund roughly 25% exposure to silver market. For about a quarter of people who are investing into precious metals sector, it is probably the highest part of that portion people can leverage and it is a lot.
But, the volatility is something which not everybody is going to be very comfortable with. That’s why the main point of investing in gold is that there we had annual returns of about 30% a year and we see that continuing for quite some time. Returns on gold will probably be accelerating on the way up. Q: Will you be bearish on base metals given the view on the big economies? Secondly, do you also track commodities like iron ore and coal and in the next 6 months do you see more falls in those two?
A: Coal and iron ore will probably go back to a reasonable march, in particular the higher end quality in coal and iron ore. But the marches will not come back to the levels we have seen before. The marches will be tight and will make it very hard for large chunks to get funded.
We rather like the areas which can live with lower funding, lower capex. We look at high grade copper, sulphide, nickel and also the tin market, areas which are fundable with a few hundred million dollars. There the return on equities is still quite good, in the 25-30% range and there we do not see much pressure on margins.