GFMS warns of extremely negative fundamentals for gold, silver

GFMS Executive Chairman Philip Klapwijk reckons that fundamentals for both gold and silver are extremely negative, although he concedes that current government policies might prolong the bull markets a little further.

Author: Lawrence Williams
Posted: Tuesday , 12 May 2009

NEW YORK -

Despite the New York Hard Assets convention normally being a haven for gold bugs, the first keynote speaker on the first day was not particularly taken with the near term prospects for precious metals. The convention floor, though, was largely dominated by gold and silver miners who obviously feel otherwise, as do many of the newsletter writers attending the event.

The keynote speaker Philip Klapwijk, Executive Chairman of GFMS, offered a highly analytical presentation covering gold and silver that almost grudgingly conceded that despite highly adverse fundamentals, gold could still rise a little over the remainder of the year, but not by as much as many analysts believe because fundamentals are currently so adverse.

Silver's fundamentals were also seen as sufficiently poor to keep prices back, despite its traditional volatility which has tended to see it outperforming gold on the way up, and underperforming on the way down.

Klapwijk's address was titled 'Is it game over for gold and silver, or has the bull market in these metals still got legs?' As noted above his feelings on gold were mixed, but purely on fundamental grounds, which have put supply into a substantial surplus, largely through a plunge in jewellery fabrication demand coupled with an inordinate amount of scrap coming on to the market.

He suggested the current supply/demand balance should not support even the current gold price. The fact that the gold price is as high as it is is thus down to investment demand, but if the stock market in general continues to climb, making people less risk averse, then money could start flowing out of investment gold (where the appetite seems already to be waning) back into general equities.

Klapwijk painted an even gloomier picture on silver with rising mine supply and falling industrial demand moving the market to a substantial surplus. But, he pointed out--while investment demand for gold has reached nearly one-third of the offtake as much of the world sees gold as money-- investment demand for silver lags far behind with only the diehards seeing silver as a monetary metal nowadays.

Perhaps in favour of price rises, though, short term interest rates are at or near zero, government budget deficits are exploding and monetary supply growth is extremely rapid and inflation is likely to pick up strongly at some stage.

Under normal circumstances, Klapwijk averred, we might have already seen peaks in price for both gold and silver, but central bank and governmental policies could prolong the bull market a little longer, but the adverse fundamentals will bring prices down eventually.

Other points in favour of precious metals price rises could be that Central Banks are moving back to a stage where they seem to have less appetite for the selling off gold reserves; some are even beginning to buy which could continue to support gold, despite the adverse basic fundamentals. Even so, he would not predict more than an $1100 peak for gold and a return to $20 silver as possible medium term high points for the metals.

In a Q and A session, in response to a question as to whether he would debate Bill Murphy of GATA on the latter's view that there is a global banking conspiracy to keep the gold price down, Klapwijk replied with a very definite "NO!" He quoted Margaret Thatcher on the IRA in that he would not wish to give the GATA views the publicity that such a debate might generate.

This strong statement was greeted with a round of applause from the audience, perhaps demonstrating that the New York Hard Assets conference is not quite such a venue for gold bugs after all.