APRIL 30, 2012
Far from being the usual boring consensus event for gold prices, the inaugural Dubai Multi Commodities Centre Precious Metals Conference today struck a decidedly controversial note. Ross Norman of the blue-blooded Sharps Pixley brokers from London was the leader of the bullish camp. He forecast $3,500-4,000 gold prices and $100 an ounce for silver by 2017.
His masterly presentation entitled ‘Silver has the bubble burst?’ argued that no it had not, and that merely projecting forward recent growth rates arrived at $100 an ounce within five years. Negative real interest rates were the reason for high precious metal prices cited by most experts. In short inflation is higher than the cost of money so cash on deposit is losing money.
Precious metals will rise until that ceases to be the case, or so contended arch-bear Dr Paul Walker of consultancy GFMS Thomson Reuters. He suggested that investor enthusiasm for gold and silver is wearing out and that higher interest rates could be the real ‘black swan’ event after the US presidential election is over.
ArabianMoney would not doubt this possibility. But we wonder if the immediate impact would be a lower gold price. For surely this would mean a bond market crash, and that is precisely the event that will maximize precious metal prices.
Dr Walker noted that it required $120-150 billion of investment demand per annum just to sustain current bullion prices. But if the bond market collapses the amount of money in search of a safe haven would be a multiple of that times ten or even a hundred times.
It was certainly good to see precious metal analysts battling it out with some contrarian views. Even the keynote address from DP World’ Port and Free Zone World CEO Jamal Majid bin Thaniah took a bearish view on the outlook for developing economies and contrasted that with the emerging markets.
In his view this was bullish for precious metals because emerging markets like China and India are the world’s biggest consumers of bullion. It made good sense that if the biggest consumers of bullion have the fastest growing economies this will support the metal prices.
City of Gold
Dubai has grown enormously in significance as a gold trading hub in the past decade with the value of business up from $4.5 billion to $56 billion, doubling the volume of bullion handled and expanding its global market share to 18.5 per cent, though this still falls short of the Ruler Sheikh Mohammed bin Rashid Al Maktoum’s stated target of 50 per cent.
If Dubai is to expand its role in the precious metals market it needs to establish a true bullion bank, something it does not currently have, argued Emirates NBD head of precious metals Gerhard Schubert. An audience poll also suggested that the Dubai gold sector needed to reduce its price structure to become more competitive.
‘Why is it twice as expensive to move gold from Dubai to London than London to Dubai, I have been asking that for years,’ demanded INTL Commodities Jeffrey Rhodes who is well known for his appearances on local radio. He did not get a reply!
Perhaps indeed more questions than answers were raised by this conference which was the best conference ArabianMoney has attended since the global financial crisis hit Dubai over three years ago. There was plenty of food for thought and a few more follow up articles.