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(Interview Transcript)
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Shailendra Kumar, Head Commodity Research, Sharekhan feels the gold prices are being driven by the rise and fall in the crude prices. He sees the December end prices of gold to likely be around Rs 14000-15000 per 10gms.
Excerpts from CNBC-TV18's exclusive interview with Shailendra Kumar:
Q: What is the good domestic trading strategy to apply now for gold?
A: Gold seems to be taking a lot of cues from crude oil. Since crude yesterday showed a dip to USD 120.75/bbl, gold also went down a bit and silver went down along with it. It looks like crude might test yesterday’s level and possibly it may drag down gold again today.
Q: But there is a long-term strategy what is the call really on the yellow metal from December end strategy point of view?
A: From December end, it is extremely positive. A very bullish scenario, especially now that the rupee has also started tanking, it is already touched the 42.5 plus levels. December gold is likely to be Rs 14,000-15,000 per 10 grams.
Q: What about the Gold Exchange Traded Fund (ETF) market. What are the kind of returns that one can expect from that segment?
A: Basically, the returns would be more or less commensurate with the bullion itself because ETFs basically track the prices of the bullion inherent commodity. So we see something around 20-30% returns from here till December. Probably ETF will also replicate those returns and may give more or less the same rate of return because the fund running cost is extremely low in ETFs.
Q: Line out a strategy that you would advice for someone who wants to play gold on the domestic market
A: The scenario is extremely bullish from here and the downside risk right now in gold is extremely low but the upside is wide open. The kind of beating that the gold has taken despite the crude moving from USD 110/bbl to USD 125-126/bbl; gold has taken a bigger slap. There will be a lot of decoupling from here onwards- even if sooner or later crude process fall, it may not take a much bigger beating and we might see upper side much more in yellow metal as well as the silver.
Q: Silver is actually actively traded in our market isn’t it? What kind of strategy are you putting out for that metal?
A: The prices of both the metals move in tandem so whatever gold does, silver simply replicates. But looking at the fundamentals of supply and demand internationally, they are far more bullish on silver. So silver has a bigger open-side and the downside risk is fairly less.
Meanwhile, Sunil Kashyap, MD of Scotia Mocatta expects the investment demand to support the gold prices. He sees gold prices at around USD 900/oz by the end of 2008.
Excerpts from CNBC-TV18’s exclusive interview with Sunil Kashyap:
Q: It’s being a slightly more choppy right for gold as a commodity versus crude - what kind of levels are you working with and how much do you think because of what is being happening with the dollar?
A: Right now, we are trading around USD 880/oz and it has been rollercoaster. Earlier in the year, we saw highs of over USD 1,000/oz and recently in April the price came tumbling down to USD 845/oz. So there has been a movement and since we saw the lows of USD 845/oz in April, the price has moved up yesterday we saw a sharp correction and we are trading at USD 880/oz or so.
What our customers tell us is that there continues to be good demand at these levels. There is some selling that we are seeing because there has been a sharp increase just in the last 24-hours. But we expect that selling to be absorbed and gold price should start moving up predominantly partly because of the US dollars as you said but also just because of the fundamentals for gold are very strong right now.
Q: The Goldman Sachs report talks about crude at USD 200 and also talks about gold and mentions that that is probably the best end of the world trade; at these levels would you still start buying into gold?
A: Inflation is a problem and for many years now, gold has been looked at as a best hedge against inflation and you are seeing inflation in India, China and all the major economies of the world and that is why there is a good fundamental reason why people should buy gold and if they do, then the price should move up over time.
Q: Could you highlight that fundamental reason - the kind of demand supply equation that we are seeing on gold and what is your CY08 target on yellow metal?
A: In terms of supply and demand, predominantly the demand comes from emerging markets and 75% of the world demand is because of the jewellery industry. That demand was quite low when the priced moved up. But what we are seeing now at below USD 900/oz levels, is that there is a good demand and we are seeing good pick up of physical metal and I think that is going to carry on.
There aren’t any new sources of supply coming on board. So we should see demand not only form jewellery but also investment demand supporting the gold price and I guess if we have inflation fears, the way we are seeing in the market today and they continue through to the end of the year then one should be looking at USD 950/oz by the year end.
Q: So as a strategy, would you advice investors to buy direct gold or if it is too expensive which it is or opt for Gold Exchange Traded Fund (ETF)?
A: Gold ETFs are the easiest way for a retail investor to buy gold - it has very low transaction costs - you can buy them in very small lots. So for sure, the ETF is one of the easiest routes for small investors, specially to get into gold and it also provides a lot of liquidity.
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