If India reflects the broader trend, this gold rally still has legs - Walker

While the sale of IMF gold took the market by surprise and provided the catalyst for the latest record level, a much broader investment-led rally is at work

GRONINGEN, THE NETHERLANDS - 

The investment led rally in the price of gold could be with us for much longer than anyone could have imagined, Paul Walker, GFMS CEO told Mineweb Radio yesterday.

Asked about the impact of the dollar on the price of the yellow metal, Walker agreed that much of the recent run has been the result of dollar weakness but pointed to the most recent highs reached over the last two days as proof that "the gold story is not always just about the strength or weakness of the dollar"

The announcement by India that it had bought 200 tonnes of IMF gold was undoubtedly the catalyst for the latest record price of $1,096 and it came, Walker agreed, as a surprise.

"We've always been rather optimistic about the outlook for central bank buying, but I was very surprised to see the Indians stepping up to the plate."

Indeed it is this optimism about central banks that he feels is part of a bigger story.

"I think there is this mind shift, and it's been going on for a number of years as the investment flows that have come in from high-net-worth individuals and so many offices that really started this bull rally going back as long as six, seven years ago.

And, he adds "It has now become a much more broad-based investment-led rally".

"We've certainly seen buying coming in from elsewhere in the world. There've been many through sovereign wealth funds. For all intents and purposes one would classify those as central banks or at least official sector purchases, I should say.

The question to ask, though, is how sustainable is this rally? How long can investment continue to surge into the market?

Walker's answer "It could be a lot longer than any of us imagine."

Where to now?

While the $1,100 level is indeed within sight, Walker says, one should also look beyond, just dollar figures.

He says, "There are other price levels that I would look at - for example, Gargi Shah, who works for us out at Mumbai, she's just written to me saying the Indians are talking about 18,000, 19,000 rupees per ten grams being the next target. So I think you have to actually broaden the horizons here.

But, he cautions, "The issue here is the market at the moment requires sustained inflows. We are talking $30bn to $50bn a year inflows into gold to keep this momentum going. If the Indians are a reflection of a broader trend in this market, then there is probably more of this to come.

Disclaimer

MINEWEB is an interactive publication, with rolling deadlines through each day, commencing in the Sydney morning,  and concluding, 24 hours later,  in the Vancouver evening.  If you believe your side of an issue deserves inclusion, but has failed to meet one of our deadlines, you are invited to notify the Editor in Chief in Johannesburg, and we will include you in our editing and expanding on our stories. Email him at alechogg@gmail.com

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