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

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Brebner (cont'd.): One related issue is the fact that the Indian central bank has been a buyer of gold. That is something that is actually more important for gold and is reflective of a broad-based bias by central banks in Asia and near Asia to bolster their reserves with different assets or different currencies, gold being one of them.

In terms of China, we’re moving toward a lower growth environment. It’s starting with the recent CPI numbers coming out lower than expected. There’s a potential deflationary situation emerging within China. It’s unlikely to become a big issue; nevertheless, with less money moving around in China, with less credit available, you're getting less of that excess money being put into various assets such as gold. That’s been one of the reasons why there has been a general softening in buying.

That said, you still have extremely strong demand numbers coming out of Hong Kong, which suggests that there is still very much an interest by Chinese investors in buying gold and diversifying by putting some of their money into different kinds of assets, and getting it out of China in general.

The China story is a supportive one for the gold market overall. There are still big questions as to how the People’s Bank of China is building their gold reserves over time. There's very little news as to where that stands currently, but I suspect it’s continuing to be built.

HAI: Do you see gold as a good place to invest over the long term? The short term?

Brebner: It is probably one of the best places to put your money over the medium to long term. Over the near term, everything is facing considerable pressure. There is some modest support for gold and I don’t expect to see a correction downwards in the gold market. There's just too much of a bias to avoid deflationary pressure in the Western world. I think we’ll see a continued movement by central bankers to do everything to avoid that. Deflation in a high-debt environment, a high-debt economy, is extremely risky. And so growth will continue to be stimulated by expansionary monetary policy.

The bias is towards inflation and that will create a bias towards higher gold prices rather than lower gold prices. Even though I'm not expecting to see gold prices move too much, I still think it’s a fairly good place to be, even in the near term.

HAI: What would signal the end of the gold bull market, given that we’ve already risen 11 straight years?

Brebner: That is a very good question. The key factor in my mind that will signal the end of a gold market is a willingness by central bankers to support the value of their currencies. What that means is higher interest rates. If we see interest rates move higher to more normal levels—and what I mean by “normal” is historic, average levels—then certainly there is a fundamental support for those currencies. And that means gold has less of a role to play in currency markets.

If we were to see that, or there was the potential that was going to happen in the near term, the prospects for gold would look much less promising and I’d be more negative. But I don’t see that happening any time soon.