Gold prices are so strong it is close to entering bull market territory. Nic Brown, Head of Commodities Research at Natixis, says an abscene of selling has led to the rise in gold but he believes prices will drop with upcoming quantitative easing.
"I think there are two very good reasons for the strength in gold prices at the minute. The first is an absence of selling. Earlier in the year from about mid-February until early August, we saw some very significant outflows from the physically-backed ETFs, 650 tonnes in total were sold from those vehicles."
JOURNALIST: "Well in just almost six months?"
"Yes, in almost exactly six months. The heart of very significant volume of selling and that was one of the key factors depressing gold prices earlier in the year. Well since the beginning of August, that has largely gone away."
JOURNALIST: "Why is that?"
"That's a very good question. I can speculate on that one but I don't know the full facts behind that."
JOURNALIST: "They've broken through the 100-day moving average for the first time this year. Now I know you're a fundamental analyst, but do you buy into that technical strength as well?"
"Well the technical picture is very much reflecting the fundamentals at the minute. It isn't simply a case of a lack of selling but on the buying side, there's been very good physical demand from around the world."
JOURNALIST: "Pretty positive sentiment towards gold right now. The big question is, is it sustainable?"
"Very good question. We are negative on this one. We think that the bounce may be coming to an end, that there's a few reasons we think why gold prices can push down again. First among these is quantitative easing."
JOURNALIST: "What about the emerging market turmoil that we've seen in the last month or so? Obviously India is the world's biggest buyer of gold. How's that playing into the gold price?"
"That's been very, very important in recent months. I think it will continue to be so across the developing world for many investors. If you are concerned about currency debasement in countries which have large fiscal deficits, current account deficits, it's a real risk at the minute. Then owning gold is a very good way of protecting yourself from that potential currency debasement. But now that many of these developing currencies have fallen, what that does is it reduces the purchasing power of local investors. They're seeing the local prices of gold rising quite sharply."
JOURNALIST: "What is the main concern from your client base in those emerging and developed markets? Is it the Fed taper or is it the turmoil closer to home?"
"I think it's probably both. From an international perspective, what the Fed does and what US interest rates do is absolutely fundamental to gold prices. On the other hand, individual markets will be focusing very much on what's happening at home."
JOURNALIST: "You obviously see gold lower. How much lower by the end of the year?"
"We do expect by next year, we think prices will start to stabilize and can push higher. But we think there is probably room for maybe one more push downwards, a test of the lows around $1,200 an ounce. We would not be at all surprised to see prices south of that between now and the end of the year."