Gold is set to touch $1,300-1,400 an ounce by spring next year, believes Hong Kong-based Puru Saxena, the founder and CEO of Puru Saxena Wealth Management and the editor and publisher of Money Matters, a monthly economic newsletter. That, of course, is assuming the tailwind sustains, he adds. The bullishness also extends to crude oil, a commodity where he sees demand outstripping supply over the medium to long term. Saxena fielded a host of questions from DNA, including currency printing by nations, oil and emerging markets. Excerpts:
You recently wrote, “If the bull market is still intact, then gold should break above $1,000 per ounce within a few weeks.” Why did you say that?
Gold has been consolidating in a wide trading range since March 2007 and since the bull-market began (2001), the metal has rallied sharply every two years. So, from a timing perspective, gold is due for a big rally and if the bull-market is still intact (our view), then gold should first go past $1,000 per ounce and thereafter, it should climb to an all-time high.
Now that gold has broken past $1000 an ounce (first on September 8 and then on September 11), what is your target price for the yellow metal?
Gold could easily reach $1,300-$1,400 per ounce by spring next year. If the crowd becomes euphoric, we could go even higher by April-May.
But you’ve also said that “If the price of gold fails to do this, we could see a sharp decline in bullion and precious metals mining stocks. Put simply, if the price of gold fails to climb past $1,000 per ounce and instead, it falls below $920 per ounce, it will be a negative omen. At that point, our suggestion would be to immediately sell precious metals and related stocks.” Are we missing anything?
Everyone is bullish towards gold and this is worrying for us. If gold does what everyone expects it to, then we want to be invested in bullion and precious metals mining stocks. However, for whatever reason, if gold fails to break to a new high soon, we could see a lot of frustrated bulls and this may result in liquidation. In this scenario, we don’t want to be caught with our positions and we will dump all our holdings should gold break below recent support (around $920-$930 per ounce). Remember, there are no guarantees in this business and we want to protect our capital if gold doesn’t do what we expect it to do.
There is a buzz about China asking its citizens to buy gold and silver. How much of an impact would that have on the price of these precious metals?
China has been buying a lot of gold and even its government has bought huge amounts of bullion to hedge its US dollar denominated surpluses. This news is already in the market, hence fully discounted. So, this may not have any immediate impact on the price of gold.
A lot of analysts and market watchers have been more bullish on silver than gold. What is your take on that?
In our opinion, silver is simply a high beta play on gold. When the price of gold rallies, silver rockets higher and when gold declines in value, silver plummets. If the multi-month rally in gold materialises, then silver will probably do better than gold and this is why we have exposure to silver mining stocks.
Talking of China, the country seems to be on a massive currency printing spree. How do you see that panning out? One theory going around is that a lot of this printed money is finding its way into the Shanghai stock market, and hence the rally there. Does that worry you, given that you are bullish on emerging markets in Asia?
China is printing money and its bank credit is exploding. This year alone, bank credit has surged by $1 trillion. A lot of this money has found a home in Chinese assets (stocks and real-estate) and this explains the massive rally. In the near term, this doesn’t worry us because we don’t think the Chinese authorities are going to start raising interest-rates anytime soon. And as long as the central bank doesn’t tighten monetary policy, the ongoing boom in China’s assets may turn into a gigantic bubble.
We like participating in bubbles and hope that we’ll be smart enough to get out before the bubble deflates. But, that is not likely to happen for several months.
Andy Xie, former Morgan Stanely economist and now an independent economist based out of Shanghai, recently called China a giant Ponzi scheme. He also referred to the ‘Panda put’ (the investor belief that the government won’t allow the markets to fall. The popular belief these days is that the Chinese government cannot allow the stock or the property market to collapse before October 1, 2009, the 60th anniversary of the foundation of People’s Republic of China. So, the bull run is on at least till then). Do you agree with his views?
Every economist is entitled to his or her views. Andy Xie has been bearish for a long time but the markets are rising. As an investment management firm, we don’t pay much attention to economists or analysts. On the contrary, we pay full attention to the market action and valuations.
Today, stocks in China are slightly overpriced but earnings are growing rapidly, so the rally should continue for at least another year or two.
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