This is a interview we did with Paul Walker from GFMS. This was back in 2004 or 2005, but a lot of the economic laws still exist to this day.
MINEWEB: A warm welcome to Paul Walker from GFMS. You’ve been on the show a few times in the past, Paul, and you make a living at GFMS by finding out what’s going on in the gold market. What’s it telling you at the moment?
PAUL WALKER: Well, it’s telling us that there’s still upside for gold, certainly in dollar terms. We’ve, as you know, been fairly positive about the outlook for the metal over the last year and a half, and all indications out there are that it’s still got some upside. Look at what’s happening in the physical markets in India, a stonkingly good April and May period – not just on the back of the seasonality. Low prices did help it a bit, picking it up. So you’ve got the floor there, and elsewhere you’re looking at what’s happening in the US economy, especially with the gold IRA retirement accounts. Our house view is reasonably bearish on the outlook for the US economy. We still think the twin deficits – there has to be some correction. I mean, [I was] speaking to somebody before coming in there and people are talking about there has to be a correction to what’s happening in the current situation in gold mining in South Africa. I think sooner or later something has to give, and our view is that the US economy is going to be the leading indicator to keep an eye on, when it’s gold in mind.
MINEWEB: Everyone – from The Economist to the Financial Times to yourselves – is saying that you have these imbalances in the United States. Yet they continue to occur. Alan Greenspan is going to be speaking a little later this evening and again tomorrow morning, to perhaps calm the nerves. But if people do get more nervous then presumably that would be a good sign for the gold price.
PAUL WALKER: Well, I think it is. Sooner or later – you cannot indefinitely run these imbalances. That much is an economic given. You can look at a very benign outcome, where the US benignly grows it way out of this and the deficits rectify themselves progressively over a, say, five- to ten-year period. This is especially important for all those individual retirement accounts backed by gold. Economic history would seem to indicate that that’s rarely the case, and our view is that you’ll still see a significant weakening of the dollar and that is going to be good for the dollar gold price.
MINEWEB: Why hasn’t the gold price reacted more, then?
PAUL WALKER: Well I think you know there’s been an expectational element. Expectations in the markets are everything, and until those expectations change you will see the current status quo being maintained. And I think our view, the GFMS house view here, is probably actually not a mainstream view about the US economy, and some have questioned our ability to forecast the markets. As we all know, forecasting can be a mug’s game at times. But if you look at recent economic history, you look at any other country that’s run similar imbalances, you look at the imbalances that have emerged in, say, the property market in the UK in the ‘80s, people were saying then, well, you know, we can have a benign end to this – it doesn’t have to end in tears. But when you reach a certain critical level where it just keeps on escalating and growing, and people, most importantly the economic agents out there, don’t change their behaviour, the only way you can rectify that is through a severe correction, and I think ultimately that’s what we’re going to have. We’re going to have a sharp correction, see the dollar really weakening against a variety of other currencies, and you’re going to see the dollar price on the move up.
MINEWEB: Nobody tells you when, though. Paul, just going back to June, July 2003, the gold price at that point in time around a $340 an ounce level. It had a wonderful run all the way up until the end of the year in December. Kind of messed around a little bit in January and February, got to, in March, well above $420, and then took an awful crack down to $375 an ounce, which is a big fall. Looking at the graph now, what caused that, because since then it’s been moving back in the correct direction for South Africa – this being our biggest foreign-exchange generator? But what happened in March, April?
PAUL WALKER: Well, I think there was news starting to emerge out of the US economy that suggested that things weren’t going to be that bad. Some of the growth indictors coming out of the US were fairly positive. The dollar was looking a little bit stronger. People took a more positive view on the dollar, coupled with the fact that of course you’d seen this very strong runup. And, I mean, the market dynamics won’t necessarily respond to supply and demand fundamentals on a daily basis. They certainly will assert themselves over a medium period. And I think what you saw happening there was a runup, a slight overshoot in terms of where the market could in a sense take itself to that time, coupled to data coming in which suggested that it was a bit toppy. You saw a correction, and a fairly sharp one at that time, but the trend in our view is very much one that’s still on the upside.
MINEWEB: So if you’re going to have a $40 or $50 correction in such a short period of time, I guess it could go the other way.
PAUL WALKER: Well, you know our view has always been actually a fairly clear one when it came to in a sense forecasting. Having said it’s a mug’s game, as you know, I on past occasions on this show have made predictions about where we think the price is going to go. And our view has always been that the gold price is not going to stick around this level. It’s not going to be within the $390s to the $410 level for very long. It may stick around there for a while, but sooner or later the economic forces are going to assert themselves. Either our house view on the economy’s wrong, and we could see downside for gold, and then there’s probably going to be a $30 or $40 downside. But our house view is very strongly that the economic drivers of the process – and really what’s driving gold at the moment, our view is that it’s still the investment market, it’s still a view on the dollar – a view of the US economy, and the supporting factors in the gold market are still very strong. Look at India, look at what’s happening in markets like China – I’ve just come back from there. Gold is doing very well. New programmes are being implemented by organizations like the Gold Council, the 18 carat or K-Gold campaign. You’re seeing a lot of offtake. So the market has adjusted in those areas to prices around the $400 level, and it’s really going to be the investment driver over the next six to twelve months that I think is going to take it either substantially higher, our house view. If we’re wrong about that, well, I think you’ll see $30 or $40 on the downside.
Here is a newer interview with Paul Walker on Gold Price:
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