Poor demand for physical gold may cap price rise: Platts

Gold prices can see some gains going forward but there could be a ceiling to the prices as physical buying is yet not taking place, said George King Cassell, Senior Specialist Metals, Platts.Speaking to CNBC-TV18 Casell said both gold and silver have outperformed in the year so far. He expects to see gold being bought not just as a safe-haven asset as US economy starts picking up. Gold buying in India will increase on the back of the festival season and a good monsoon, he added.On the Sovereign Gold Bond Scheme running in India, Cassell said it makes sense to get returns on paper gold rather than holding onto the physical gold. Though he also admits convincing traditional Indians to buy paper gold will be difficult for the government. Below is the verbatim transcript of George King Cassell’s interview with Manisha Gupta on CNBC-TV18.Q: What is your sense first of all on the precious metal space? We have done pretty well for the first half of 2016 do you see a repeat of that performance for the rest of the year?A: It has been a fantastic year for precious metals all around. Gold and silver both outperformed amazingly well. Not many people were expecting this back in December but returns of up to 30 percent even higher in silver case. However, what we are seeing at the moment with the easing in prices is the safe haven demand falling away which really exploded in from January and has been build up throughout the year and we saw even more safe haven demand following the shock decision from the UK on the referendum. At the moment what we are seeing is that safe haven demand slowly falling away as risk-on appetite returns to the market. As you mentioned, the equities are starting to perform a lot better. We think some much more positive economic data from the US and this is helping markets to return back to a more positive level. We have seen S&P 500 report record highs in the last week or so and the dollar is doing well and this is all putting pressure on gold. You just have to look at the speculative positioning on COMEX with net long positions coming down for the first time in five or six weeks as well as gold backed ETFs, the demand in those have also fallen in the last week or so for the first time since beginning of June as investors or perhaps had locking in some profits, taking some money out and positioning themselves slightly differently for the second half of the year. But, all we have to do is look at and instances like Turkey over the weekend and shock geopolitical events can move gold in unexpected ways. However we are generally expecting to see a little less safe haven demand in the second half of the year. As US economy starts to pick up as it is expected by most of the streets, we would expect that pressure from the interest rate expectations to perhaps ease what has been such a bull run for gold this year.Q: So what is your expectation on prices from here on? Where do you see a support? Are you advising buying on the lower side? Do you see much more highs because by the previous quarter, we saw most banks and brokerages come out and say that the gold prices can go up to USD 1,400 per ounce and even further higher. At these current levels, do you see those kind of levels possible?A: It is always hard to get just the right place to buy gold although we do not make recommendations on buying at all. But most of the market is expecting gold to perhaps have a bit of a natural ceiling when it comes to prices because what we are seeing is when prices do get quite high, we are seeing a complete collapse in physical demand. And we know from very important market, I mean India and China which consume over half of the physical gold in the world, the physical demand there has really collapsed this year as prices do go through unseen levels, levels that we have not seen in 2-2.5 years. So we see physical buying really fall off and what tends to do is in effect provide a bit of a ceiling to prices from stopping them going too far. But on the other hand, what does happen is if prices were to dip much further, we would expect the buying to increase. So, although we can provide a bit of a ceiling on prices, and it can also help put but of a floor. A lot of these markets which do buy a lot of gold, if prices do start to dip by maybe USD 100 per ounce or maybe more, what we would expect to see a pickup in buying. As you may know yourself, the monsoon has started, is under way in India. A lot of people are happy about that and as the monsoons progress, if we get a good monsoon, we would expect to see a larger uptick in gold buying in the country. The festival season starts in about a month’s time, in the middle of August, so a lot of people will be looking towards that to see whether the buying picks up in these important Asian economies.