Global commodity markets have entered a period of high and volatile prices. Voices from Eurozone leaders are doing little to allay investor fears that a recession is around the corner.
The last time there was a massive intervention was when quantitative easing was announced by the Fed after the 2008 global meltdown. In the current environment, Juerg Kiener the Managing Director & CIO of Swiss Asia Capital expects a similar QE exercise to help boost the system again. “That will mean we look at gold prices somewhere between USD 2,500 and USD 4,500 in the next 18 months.”
Markets are watching news coming out of West Asia carefully to see how black gold prices will move. “Crude oil prices could get support over tensions in West Asia.” He expects crude prices to head high as the dollar softens.
Below is an edited transcript. Watch the accompanying video for more.
Q: How is the commodity market reading all the news from Europe and even the reserve requirement cuts in China?
A: What you see right now is a global intervention from the point of view of rescuing the financial system. What we have right now is that the US dollar swap market is basically underpinning the asset markets and the debt markets globally. That has certain implications, the first one is that the US dollar becomes weak, as we are using the swap markets to transact and secondly that the money will be used for the debt until recapitalisation of the banking system in the West, a particular environment where the macro economic environment stays soft. So we see an escalation of monetary base going up and as a result crude oil and particularly press metal prices will be well supported and will probably start to move up pretty soon.
Q: Where would it leave gold though?
A: The last time we had a massive intervention, which was QE2 after the 2008 meltdown, we started to see gold double. If you look at today’s environment, we would expect a very similar round of QE to be injected in the system. That will basically mean that we look at gold prices somewhere between USD 2,500 and USD 4,500 in the next 18 months.
Q: What do you expect to see on crude? The rally over there has stalled as well over the last few weeks?
A: The huge rally, particularly if you look at the NYMEX over the two months we have gone from USD 80 to USD 100 per barrel. We are stabilizing somewhere around that area USD 10 up and down up of the USD 100 per barrel level. What is really happening is that as the dollar starts softening again, we are going to see a re-rating of crude in international money terms.
Secondly, what we see in the last couple of weeks is the issues from West Asia accelerating, we have seen the Arab League imposing sanctions on Syria and we see massive confrontational talks regarding Iran, between the US, China and Russia. That underpins prices and the upside would then come out of the dollar devaluation or in the worse case, bigger conflicts in West Asia’s militarily.
Q: How would you call the base metals going into next year?
A: If you look at the base metals which have constraints on the supply side, they had a huge correction in these last three months. A few of them were trading at replacement value and I see accumulation of that. This could be meaningful, particularly, in a monetisation effort. But in this early stage, precious metals will outperform the base metals; they will even outperform crude as its going to be a monetary tool and a safety tool outside the financial system. Physical precious metals are going to be probably the key.
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