'Gold likely to touch $700 level by the year-end'

TRADE TALK | Paul Walker, CEO, GFMS

Paul Walker, CEO of GFMS, a globally renowned precious metals research house, hints at the opportunity to enter the gold market in an interview with Dilip Kumar Jha. Excerpts:

Do you think the time is right for entering the gold market?

The recent upheaval in the market (following the subprime crisis) has shaken investors' confidence in the financial asset class. There are chances that investors will look towards the gold market for a safer investment option, thus pushing the yellow metal prices up to $700 an ounce by the end of the current calendar year. Therefore, this is the best time for the existing players and new entrepreneurs to enter the market. The prices may remain volatile for the short term, but the market looks bullish in the long run.

What are the possible barriers that can hinder the march to $700?

The slowdown of the US economy, coupled with depreciation in its currency, has resulted in investors diversifying into other asset classes such as real estate. This may result in gold losing favour among investors and thus pushing prices of the metal down. Although, the developing economies play a pivotal role in determining gold prices, markets such as China and India can only contribute to the global development. Therefore, it is the US market and the developments there that determine the gold market.

Do you see India's rising jewellery demand affecting prices globally?

Although, India remains a significant player in the gold market and the local market continues to have correlation with the world market, the jewellery demand is not going to determine the price movement globally. Moreover, the country's jewellery demand is seasonal. This sums up why demand for jewellery, which forms approximately 60 per cent of India's total gold imports of 810 tonnes, is not sufficient enough for determining the global price movement.

Do you think gold has lost its status of an asset class?

Gold continues to be a preferred asset class and still scores over other investment avenues including equities, bonds and real estates. Although, prices remained volatile in the past, the various precursors to market meltdown such as subprime crisis have not hit gold as hard as they did in case of equities and other investment options.

Do you think ETFs will succeed in India?

Though initial signals are not very supportive, the trend does not indicate a Japan-like situation where ETF failed completely. Somehow, more instruments such as ETF can be tested for consumer preferences.