Gold Field Mineral Services (GFMS) is a leading research agency for the bullion market. Its chairman, Philip Klapwijk spoke to Rajesh Bhayani on trends in gold and silver. He says prices of both metals may remain volatile for now but may not decline by a big margin. Excerpts:
There has been a sharp correction in silver and some correction in gold prices in the last couple of weeks. Is this correction over?
Trend in silver will depend a lot more on what happens to gold and silver will follow gold as significant correction seems to have been over. The ratio of gold to silver prices was also at abnormal levels, which has seen some adjustment. Weakening in prices were due to some improvement in US$ though that may just be a pull back rally. After the decline, there has been some improvement in prices, corrections may not be over yet. Still I will be surprised if gold falls below $1,450 per ounce. However, crossing new highs may take a few quarters. For silver $35 seems to be strong support. However, the consolidation phase may be volatile. All macro and other indicators suggest bull run in precious metal is not over yet.
Did the short covering by some investors on a leading global exchange result in the sharp rise in silver prices?
I did heard about some Indian investors, investors from United Arab Emirate (UAE) and even a hedge fund covering their positions on COMEX division of CME in silver resulting in a sharp rise in prices. But let me tell you that every thing was not short covering, there was genuine and huge buying interest also and those who bought early expecting silver to reach $50 they seem to have booked profit. However from now on precious metals could consolidate further.
How did the gold and silver demand change in the last decade?
Investment demand for gold and silver has gone up significantly in the last couple of years, more so in silver. Silver demand for jewellery has seen five per cent growth in 2010 over 2009, large part of the demand growth has been seen in investments which grew by 26 per cent (including demand for coins) in 2010. In 2009, investment demand was 22 per cent. This was against a 9-10 per cent growth during the decade. Even in gold, demand for investment was fluctuating between 10-25 per cent from 2001, it has been around 40 per cent since the last two years with 2010 demand growing 38 per cent.
How do you see India’s silver import growth?
India imported 3,030 tonnes of silver in 2010. In 2011, it may be even higher but on a month-on-month basis growth is fluctuating, indicating high prices could affect demand growth for silver in India.
There is a huge difference in gold demand projections by the World Gold Council (WGC) and by the trade circles. What could be the reason?
Trade circles are putting demand figures lower and my understanding to that is last year there was significant build up of trade inventory (This means gold lying unsold with jewellery shops were also taken as demand). Hence, figures for demand will differ from consumption — i.e. gold sold to consumers.
But round tripping of gold is also happening in a big way?
We have seen gold exported out of the country, including from export zones. While net imports of gold in 2010 was 968 tonnes, gross imports were 1,123 tones. This means 155 tonnes of gold was exported in 2010.
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How are the huge volumes on futures exchanges globally affecting price movements of precious metals?
What we have seen on the futures exchanges was that most of the positions were build up with a long bias. But built up of such speculation positions resulted in higher prices followed by volatility. Though, speculators provide liquidity which is very helpful for hedging by fabricators.
How has been the trend in gold scrap selling, with the prices reaching a high?
Trend in scrap (selling old jewellery) has been divergent in India as well as elsewhere. Internationally when gold prices rises, old gold comes to the market for selling and the same thing happened in 2010, but in India scrap selling has come down as price expectation of Indian consumers have gone up in an attempt to hold on to gold and wait for prices to rise.