Feedback
BEIJING, 19 September, 2011– Historically low interest rates, fragile economic growth, and persistent concerns over quality of sovereign debt in US and Europe will help to keep gold prices high for the foreseeable future, according to leading US commodities experts at a commodity futures seminar held in Beijing today by ICBC, in conjunction with the Hong Kong Mercantile Exchange (HKMEx).
The seminar, attended by more than 80 delegates from China’s top 50 commodities producers, featured as speakers Jeffrey Christian, Managing Director of CPM Group and a world leading expert in the precious metals market, and Paul Shellman, founder of commodity risk advisory firm Wainscott Commodities. Also speaking today were senior executives from both ICBC and HKMEx.
Wainscott Commodities’ Mr Shellman forecasted gold price to remain high for the foreseeable future, backed by factors such as its link with US real interest rates, a diminished outlook for the US economy, and persistent concerns over the US and European sovereign debt. He also pointed out that adjusting for inflation, gold price in US dollar terms was still below historic highs reached in the 1980s’. “However, investors should remain mindful of such risks as an unexpected resolution to the western debt crisis, attempts by governments around the world to limit gold investment,” Mr Shellman said.
Gold also benefited from a cyclical imbalance in supply and demand. He said that gold production peaked in 2001 and has since declined each year before picking up again in 2009. With supplies constrained, gold – along with silver, another precious metal – has outperformed most other major asset classes so far this year. Until the end of August, investments in gold have generated a return of 25.9 percent, second only to silver which has returned 32.3 per cent. As of the first quarter of 2011, there were over US$400 billion invested in commodities globally, including US$100 billion in precious metals. “Commodity markets are now seen as safer than equities or bonds,” Mr Shellman said.
CPM Group’s Mr Christian agreed that commodities, including gold, have enjoyed a revival in investment demand from investors seeking capital preservation and appreciation. “Often when institutional or other investors come to us saying they want to invest in commodities, or that they are already investing in it, what they mean is just gold. The reality is that gold is radically different from industrial commodities,” he said, adding that gold prices typically behave similar to financial assets and are primarily driven by investment demand.
Mr Christian recommended that investors diversify their holdings across commodities in addition to other asset classes. “Precious metals are seen as a portion of a total portfolio and not the dominant position in one’s total assets, except in extreme situations. Investors should also use physical metals as longer term positions, and futures, and options for shorter term investments and hedges of portfolio,” he said.
The Hong Kong Mercantile Exchange offers two commodities contracts. They are a 32 troy ounces gold futures contract and a 1,000 troy ounces silver futures contract. Both are denominated in US dollars, with physical delivery in Hong Kong. The exchange will also launch gold and silver futures in renminbi, as well as a precious metal suite including platinum and palladium, and contracts in energy and agricultural products, as well as commodity indices.
