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Mines & Money London '13: Gold is far from a bubble – Holmes

Publishing Date
02 Dec 2013 5:29pm GMT
Author
Mining Journal
The lack of leverage in the gold market means the yellow metal is far from being in bubble territory, according to Frank Holmes of US Global Investors.

Since April, the dollar price of gold had shed about nearly a quarter of its value, falling from the US$1,600-levels to its current price of around US$1,230/oz. Globally, there has been a net outflow from gold ‘exchange traded funds’ (ETFs), in each month since January.

Speaking at Mines & Money in London, Holmes, the chief executive and investment officer of the fund management firm said: “The difference this time is that a lot of gold consumption is actually in cash.”

He estimated that 60% of the demand for gold now came from the “love trade”, linked with cultural affinity and rising incomes in markets like India and China.

Holmes did, however, point out that GDP [gross domestic product] per capita in these key markets had been stagnant for the past 18 months and that had impacted luxury demand.

He pointed out that with 600 million people in India below the age of 25, the indicator would grow along with the affinity for gold over the longer term.

An increase in US inflation next year could also change fortunes for the ailing price, according to Holmes.

The recent swing to positive real rates of return on US treasuries, due to low inflation, had been negative for gold, he said.
A year ago, long-term treasury yields were showing negative returns when netted off against inflation. However, in November 2013, a combination of higher yields and lower inflation helped these real returns turn positive.

“It is going to be another six months before we believe we will see an upturn in the CPI [consumer price index] in the US and then there will be a different emotional attachment that takes place in the gold market,” Holmes told delegates in a keynote address titled: 50 Shades of Gold.

“Gold always rises when you have a negative real rate of return,” he said.
 

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