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Leading analyst: What to expect from gold, platinum prices

In light of the recent drop in the gold price, as well as Anglo Platinum’s expectation of a 10 percent decrease in profits, Alec Hogg was joined by the world’s leading precious metals analyst, David Jollie on CNBC Africa’s Power Lunch. In this interview Hogg gets a full understanding of what the world can expect from the impact of lower oil prices, and the Swiss vote against boosting its Central Bank’s gold reserves on gold prices. Jollie also expands on the movements he expects to see in platinum prices. – LF

ALEC HOGG: David Jollie is a Strategic Analyst at Mitsui Precious Metals. We know that gold has slumped to a four-and-a-half-year low, affected somewhat by the Swiss rejecting a proposal to boost the Central Bank’s gold reserves. David, as Strategic Analyst at Mitsui Precious Metals, knows a bit about platinum as well so no doubt, we’ll pick up on that too, with the trading update coming out of Anglo Platinum today. David, I guess it was hoping against hope that the Swiss would vote the way that the gold bugs wanted them to do. From a longer-term perspective, we have seen gold come under an enormous amount of pressure. With the drop in the oil price, is that good or bad for bullion?

DAVID JOLLIE: I think it’s a very interesting question. In the short-term, I think falling oil prices is generally bad for other commodities. A lot of the downside in the gold price today probably has to do with the oil price falling at the end of last week, rather than with the Swiss gold initiative. I think that if you look at the long-term, it’s much more complex because if you have a low oil price you’re going to have lower inflation. You’re going to have loose monetary policy for a lot longer and that might in the long-term, lead to more inflation, and it might, in the long-term lead to more reasons to want to hold gold. It’s certainly cheaper to hold gold in the short-term, as well. There are cases to be made that it might actually, be a bullish thing if the oil price stays low or even goes lower but I think that in the short-term, you’d look at that as putting downward pressure on the gold price on a trading front.


GUGULETHU MFUPHI: David, does China have any influence on the gold story, at all?

DAVID JOLLIE: I’m sorry.

GUGULETHU MFUPHI: Does China have any influence on the gold story, at all?

DAVID JOLLIE: Yes. On the demand side, you’re looking at three or four different sectors that play a big role in demand. In the official sector, there’s the Central Bank’s buy-in. You’re really looking at the two big countries (India and China). Again, I think China is a complex story. Last year, we saw hugely, strong gold demand in China in response to the price drops. This year, although we’ve seen some price weakness, we haven’t seen quite the same level of bargain hunting, although we’ve seen it a little bit recently. You can see a few reasons for that. Firstly, the Chinese economy is running a little bit more slowly. There’s also a lot of effort to stem corruption in China, so people are just a bit more wary about buying or giving gold. It doesn’t mean that they’re not doing it, but they may be a little bit more careful.

I would still see China long-term, as a growth story for gold – probably higher demand – through investment and jewellery, etcetera. Inflation is probably higher in China than most people think already, so there’s a reason to hold gold but maybe this year’s just a little bit quieter I think, and that’s allowed some of the price weakness we’ve seen. If you have a view that growth will pick up next year when inflation picks up then I think you have a more bullish view about gold as well.

ALEC HOGG: Moving on to platinum if you will David, the trading update that came from Anglo Platinum today said their profits would be down ten percent as a result (primarily) of the strike. With Anglo Platinum seemingly getting its act together again, is this going to have an influence on the supply/demand situation for that precious metal?

DAVID JOLLIE: It’s an interesting question. I think the year-on-year comparisons in terms of profit and in terms of output are very difficult this year, clearly because of the strike so it’s very difficult to give an answer based on those. I think the market perception’s a little bit confused as well because it shouldn’t be a surprise that their profits are down, given what’s happened. I think that what’s interesting is that the producers have generally gone back to reasonably good output fairly quickly. They seem to have done so quite well – beginning to bring costs under control – and a lower oil price is helpful in that. A weak Rand is quite helpful for South Africa as well. I think those things are in the market. The question is, are they bearish for the price. Probably not, hugely. I think people expected to see production coming back to normal.

What we now wait for is to see if there’s any progress on the potential sale or closure of mines, or mothballing of mines in South Africa. If there isn’t, I think there’s still a perception that this market is oversupplied. Whether that’s correct or not, I think, you would see that as putting some downward pressure on the price. In my view, I think the market probably isn’t that much oversupplied and I think that’s incorrect over the long-term, but in the short-term I think that’s how the market feels. You could imagine seeing a little bit of further pressure on price if output returns to the levels it should return to in the next few months.

ALEC HOGG: Terrific insights from the world’s leading analyst on precious metals, David Jollie, who’s a Strategic Analyst at Mitsui Precious Metals.

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