Gold News

Gold Prices "Set to Bottom" in Summer 2014

Cash costs for miners are a longer-term support at $1200. For now, get ready to buy...
CARLOS SANCHEZ is director of asset management at precious metals and commodities consultancy CPM Group in New York.
Here he discusses his current outlook on the metals markets with Mike Norman at Hard Assets Investor...
Hard Assets Investor: To start off with gold, it's really in a tight range these days, with $1250 on the downside, maybe mid-to-high $1300s at the top.
Carlos Sanchez, director of asset management, CPM Group: Really since late February, early March, gold prices have come off from testing $1375 and $1380 or so. Now they're moving between, basically, an even tighter range of $1280 to $1320. I think part of that is the fact that equities have been taking all of the limelight, all of the attention from gold. A lot of investors have perhaps reduced some of their gold purchases, safety purchases, and gotten into equities.
HAI: From the standpoint of competitive assets, we've been seeing record highs in the S&P and the Dow Jones. But on the flip side – and a lot of people are getting very cautious about stocks – we're seeing more forecasts of some sort of a correction. Would that trigger a move back into gold?
Carlos Sanchez: I think that's what's happening to an extent. You've seen stocks continue to rise over the past several quarters. But more recently, I think what you're seeing is investors are reducing some of their stock purchase, some of their equity purchase, and moving back into perhaps some safety assets.
What you've seen more recently is bonds have appreciated somewhat. The interest rate in the 10-year was close to around 3% a couple of months ago. Now it's closer to 2.6%. Gold has come off, but every time it dips – again, I mention that $1280 mark – it keeps on moving back up fairly quickly on short covering or sparking buying interest because we're still not out of the woods yet. GDP growth in the US was 0.1%, which was a bad figure.
HAI: Very weak.
Carlos Sanchez: European GDP is still tepid, and China is not growing at that double-digit pace that we saw in previous years.
HAI: What about the Dollar? We've seen multi-year lows against the British Pound and against the Euro, close to $1.40 recently. Yet you don't see that reaction in gold prices that we usually do.
Carlos Sanchez: I think a lot of investors have been thinking that some weakness in the Dollar would have pushed gold prices higher, but that hasn't been the case, and I'd relate that more to we're in this noninflationary environment, the massive push of the Fed pumping money into the market.
HAI: Which has not resulted in any inflation. That surprised a lot of people.
Carlos Sanchez: Definitely. It's surprised many folks. But I think it's pushed up inflation to some extent, but more so in the foods area, the agricultural area; not so much in housing, in perhaps other sectors like manufacturing, etc.
HAI: Talking a little bit about foreign demand, China has been a big factor for a long time, as is India. You recently released your annual Yearbook. What are you seeing right now in terms of Chinese demand, in terms of Indian demand?
Carlos Sanchez: India demand, as you know, has been sort of put on hold somewhat because of the import restrictions on gold. So, there is buying there but not at the pace we saw as previous years because of those import restrictions with the import/export deficit that India is facing.
As far as China, it's seeing a pickup in demand at times when gold prices do fall below that $1300 mark. But we're past the seasonally strong period for demand. The New Year is past and given that prices are lackluster, I wouldn't be surprised to see Chinese investors wait for prices to move below $1280 to increase their purchases. And we may see that level, that lower level, over the next couple of months.
HAI: So would you say that the $1250 area is basically now the new floor?
Carlos Sanchez: I think that's going to be the new floor. I think $1280 right now is the floor that we're seeing, it's being tested, I think, today [May 8, 2014]. The new floor, I think, going into June, July, August, is going to be $1250 and probably $1200.
HAI: Now, I've not spoken to anybody, even bears, who think that gold prices could get back down below $1000. Do you think that's completely off the table, or might the previous peak, in 1980 at $850 an ounce, see gold prices comes back down to that old high?
Carlos Sanchez: No, I don't see it, I think for a couple of reasons. First of all, economically, financially, we're not out of the woods yet. There are many things politically that could go wrong. You have Russia, you have Syria, you still have the situation with Iran. You've got the US on this unprecedented program of asset purchases, stimulus, the Europe...
HAI: But the Fed are backing off on the taper, they're down from $85 billion a month to $20 billion a month. Some people say that's a removal of stimulus.
Carlos Sanchez: It was bullish for gold, but since 2013, this last stimulus program – the purchases program that began in 2013 and is now being backed off – hasn't really pushed the prices higher. I think another factor why gold prices are going to hold up is you have the cash cost of production, all-in cash cost of production. For many companies, that's now close to $1000, $1250.
HAI: That's a longer-term supporting factor. What are we looking at now?
Carlos Sanchez: I think on a short-term basis, perhaps, you want to follow the trend, which is lower right now. Into the summer, into June, July, August, I think you're going to have those cyclical lows for the year and probably for the next several years. And I think that's the opportune time to stock up on gold.
HAI: All right. Carlos Sanchez, always a pleasure. Thank you very much. is a research-oriented website devoted to sharing ideas about investing in the natural resources sector. Published by Van Eck Associates Corporation, the site offers an educational resource for both individual and institutional investors interested in learning more about commodity equities, commodity futures, and gold – the three major components of the hard assets marketplace.

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