HardAssetsInvestor

Written by Sumit Roy  |

July 11, 2012

Deutsche Bank’s Brebner: Gold Headed To $2,000/oz. In Early 2013 Amid Inflationary Bias By Central Banks

Details

HAI: I imagine your outlook for gold for this year is going to vary, depending on what the Fed does.

Brebner: I still have to forecast these things. Right at this point of time, I’m expecting to see gold prices remain fairly moribund over the summer period. I don’t think we’re going to see much movement. I think $1,550 to $1,625 will probably be the range. And then, maybe into September, we may see a little bit more activity, where the market perhaps starts to expect or anticipate Fed action. At that point in time, we’re likely to move above $1,700. And then maybe move higher towards $2,000 into the beginning of 2013.

HAI: You mentioned that range of about $1,550 to $1,625. Is there any scenario where you could see gold falling below that range, below $1,500 even?

Brebner: Sure. That’s certainly the possibility if political intransigence increases, especially in Europe. There's been some evidence of that in China, but it’s certainly not as big an issue as it’s been elsewhere. If we see it in the U.S. and decisions cannot be made and we go into a crisis which is somewhat unresolvable, then you go into high deflation mode. And there's a big scare. Certainly, gold could move lower in that kind of environment. And that’s when you’ll get more and more assets moving into things like U.S. Treasurys.

We’re in a very polarized environment, where we could see gold prices fall in a severe deflationary situation, or rise significantly under a more inflationary-biased situation. Right now we’re in a trading range, but it’s very unlikely that that’s going to be sustained and we’re going to move one way or another by the end of the year. It’ll either be considerably higher, or we may see a sharp move lower.

HAI: We’ve seen a sharp contrast in the demand trends for China and India. Can you explain what’s going on there?

Brebner: The Indian situation is something that’s been a bit more structural. We’ve had a decline in the jewelry consumption in India for many years now. This is a function of several factors. One is that they are fairly price sensitive. As prices continue to rise, particularly in rupee terms—I would note that gold prices in rupee terms have hit all-time highs recently—the appetite for gold naturally wanes. Conversely, as gold prices fall in rupee terms, you see it pick up.

It’s been a component of gold demand which has been decreasing. But it’s something that has been highly uncorrelated with the gold price. It’s not something I'm too concerned about, as it has not been a major factor in determining why gold prices are priced where they are.

The Indian situation will continue to be one that’s secondary or tertiary, in terms of impact on the gold market. Overall gold consumption by India will continue to decline, but it doesn’t concern me.