Gold today dropped to a two-year low on fears of central bank sales and less monetary stimulus, while holdings on global exchange-traded funds hit their lowest in more than a year. Investors ditched other commodities like oil and copper too.
Also read: Gold hits fresh two-year low; Silver at 29-month low
Below is the edited transcript of Barratt's interview to CNBC-TV18.
Q: What's the call now? Would you say that we have now started a bit of a bear market for gold? Or would you say that maybe it is just a bit of a correction phase going on in a long-term bull market?
A: It certainly has been quite an eventful day, there is no doubt about it. A lot of people are actually questioning whether or not a bear market has commenced. However, I tend to suggest that nothing really has changed in the forecast for gold other than some very, very large orders that have gone through the market and really that's about it. These levels are reasonably good areas to buy.
Q: There were some technical analysts who said that 1525 would be a very strong support level. Now that's breached, even then the longer term story of gold doesn't change. What is its trajectory for you over the next three months even assuming that this USD 100 breach below that technical support was because of one off orders? Then what's the trajectory for the next three months?
A: We actually have USD1525 per ounce as the very significant support level and it was one where we really have to question the result of the bull market. Is it broke? Given the size and the magnitude of the move, we saw it actually come down to 1422. So, it really has shaken the market. I can suggest moving out of for the next two to three months whilst the stimulus programme continues, whilst central banks are pouring in close to USD 180 billion a month worth stimulus. We will see higher price pressures and as a result of that, inflationary expectations will have to come to the market and gold at the end of the day will be a winner as a result of that.
Q: Last week when we spoke to you, you said that if Brent breaks USD 102.50 per barrel then we are looking another 5-6 percent fall. Are you surprised that that level has actually been broken? Do you see any kind of near-term support at maybe say a USD 100 per barrel or so that's a bit psychological in nature as well or do you now see it going to say USD 97-98 per barrel?
A: We have seen quite a significant break in the oil market both Brent and West Texas Intermediate (WTI). One of the interesting news items is that, inventory levels for crude oil are up around 22 years highs. So, it is a story that suggests that we are not seeing consumption and if we are not seeing consumption, then the price has to adjust. So, I think given that the market is relatively quiet in the Middle East, given the economic numbers, today and the numbers coming out of China are not as good as what people expected. The forecast for oil moving forward is not as positive as it had been, as such a break below those levels indicates that the oil market should be under pressure for a little length of time.
Q: I take your point that gold was affected by one-off sales. It has come in the context of the CRB Index itself falling, overall commodities have fallen. So, are you expecting commodities, for instance metals and other commodities as well to see a little more slips before they stabilise?
A: Absolutely. When I tend to look at what's happening in the market, we are seeing the level of inventories build up quite dramatically. However, we are not seeing the level of consumption. So, people will start to question what the USD 180 billion a month has been spent on. One of the most important things is in the copper market where we have seen inventories in the last quarter rise by upto 80 percent and that tells us that people aren't consuming. We then have to question the amount of money that we are throwing and considering people aren't consuming, it will actually hurt commodities. You will find that some commodities will continue to come under pressure once the stimulus failed to take hold in the form of economic recovery.
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