Jeffrey M Christian, founder and managing direvtor of the New York-based CPM Group, is considered an authority on the markets for precious metals. He spoke to Dilip Kumar Jha on the outlook for gold and the dollar. Edited excerpts:
Gold prices are up after the US downgrade. How long will it go up?
We believe the downgrading of the US Treasury’s debt rating is already largely reflected in short-term gold prices. Prices may rise further, to around $1,725 an oz, but could then subside.
Do you think at that level, gold will take rest?
Our expectation is that in the long run, the deterioration in sovereign credit ratings, for the US government and others, will continue to stimulate high levels of investor interest in gold. Investors have been buying historically enormous volumes of gold for a decade, due to a continually growing range of economic, financial and political problems. This will continue. The downgrading is another, major, factor that is likely to keep investors interested in gold in the long run.
Do you thnk countries with small exposure to overall holding (in their forex reserves) will come for buying gold as a safe-haven investment?
We’re already seeing a number of central banks adding to their gold positions, even at the current high prices. That will continue. It will be global. Thailand, Mexico, South Korea and Russia have been the most significant buyers recently, but perhaps another two dozen governments are also buying. We are seeing private investors also buying gold in most countries around the world these days.
Will the dollar lose its importance, compared to other major currencies?
The downgrading of US treasury debt was inevitable, just a matter of time. Now the deed has been done, there may be a bit of calming, a denouement. Treasury interest rates may not rise sharply, initially; they actually may decline further, following last week’s pattern. The dollar may not collapse -- it still looks good compared to the euro, as the US economy looks good when stacked against Europe’s economic prospects. In fact, the act may lead to a relaxation of financial market worry and concern about the actual act.
Which other issues could be in the forefront in the US?
Other problems, including weak US and European economic conditions, and the seeming lack of political will to address these problems intelligently, will remain in the forefront of markets’ minds. S&P said it very well last Friday, in announcing the reasons for its downgrade: “The effectiveness, stability, and predictability of American policy making and political institutions have weakened at a time of ongoing fiscal and economic challenges.” The US government debt agreement last week was structured interestingly, and holds out the potential to remove much of the politics from future budget cuts. That was too subtle, however, and too little, too late, for financial markets.
