Help us understand the kind of rally that we have seen in the gold prices. It is a one-way rally coming in, a one-direction upsurge, if I could call it that. Now, amid chatter globally of rate cuts coming in from the US and eventually in India as well, do you think there are more legs to this rally?
Juerg Kiener: Interesting question, where do we see actually gold going and why? And I think we have got to look a bit at the history of what happened to the gold market within the last two or three years. Basel III, which is basically the International Bank of Settlement, was introducing basically restrictions on selling gold short in the market. So, you needed to have actually full collateral. That has been forcing a lot of short people actually to buy back their shorts and then we used to have now this war zone coming up where your third-party risk increased and that meant gold moved back to home countries instead of staying away in other exchanges.
So, what we have now is actually still a lot of outstanding contracts which cannot deliver or they cannot deliver the right place and the first part which I made that gold is money under Basel III, it has as well a currency ticker.
It cannot default on the currency and that is another reason why it actually moves. The debasement of money and currency printing continues to accelerate, particularly during wartime. So, these two things are now the driving force which continues to move gold up.
And the third item which just joined the party is actually the BRIC membership structure which is going live probably into a year-end with the payment system which is going to require probably a 40% gold or maybe partially alternative resources backing to settle trades and that is going to mean that a lot of these countries which are BRIC members will continue to accumulate gold to actually meet their payment obligations.
The central banks globally and their reserves of gold, we have been hearing China’s central bank actively accumulating gold over the last year as well. So, do you think this is going to have a major impact on global gold prices? And if so, how much of an impact do you think this happens? And in case this trend reverses, what impact is it going to have?
Juerg Kiener: All over the world, but particularly among the BRIC countries, will continue to accelerate. Central banks will try to increase their amount of gold holdings and risk-free asset on their reserve currency statements accounts of the national banks.
And as this global debasement of money printing continues, the central banks will be forced at one stage to create stability, to create an opportunity to continue to print money. And the only thing they have left on the balance sheet to create this trust will be a gold re-evaluation through account. So, they all want to go to higher levels. Most of them are somewhere between 2% and 4% of their asset base. And I think they are going to go at least to about 8% to 10%. And so central banks will continue to be buyers of that precious metal which shines so brightly.
Similarly, just I want to understand, gold, silver. Prathamesh is saying 5% to 6% at least of a portfolio should be gold, silver side that one should be holding. What is your thought on gold and silver and the silver up move as well, what are you watching out for in terms of triggers here?
Juerg Kiener: I think the trigger has already happened this last couple of weeks. A cyclical breakout structures in all the underlying metals. If it is silver or gold, gold has been the leader. Silver is the follower. Silver is the one which is going to be moving much faster as it accelerates than gold because it is much smaller market. There is much more bottlenecks in the supply-demand structure as such.
The absolute undervalued asset within the gold and silver space are the miners. They have been basically not making any money for let us call it 12 years and this boost which we have on an acceleration in gold prices means that their earnings power is actually accelerating.
And if you look at the last quarterly earnings which came out of most miners, which were based basically on earnings roughly at 2,300, they doubled.
You can almost expect that these earnings will double again. And I think a lot of people are not really exposed to that. We still see people selling actually mining shares. We still see people actually selling gold and silver ETFs which is actually unbelievable looking at the momentum and the firepower which is actually in these charts and technical structures which is very well supported by fundamentals.
I want to understand, do you think that now it is some bit of a peak that we are seeing coming in for the run-up in gold, silver or is it just the beginning of a run-up? Over the last decade also you look at it, consistently gold prices surely have increased, we have discussed that as well, but are we around the peak at least?
Juerg Kiener: If I look at the picture of investment managers, I think the average ownership of the metal in an institutional portfolio globally is well below 0.5%. So, basically, most people do not really have an exposure yet and you know how it is when things become really positive, more and more people will participate. So, the big pool of money has not really arrived yet, the retail money in the West has been seller, it has been Asians that have been the buyers and you can see that on the premiums paid, let us say for silver in China, it is $4 higher than in London.
So that tells you that we have shortages and these shortages are driven in the exchanges and they have to be met, which means we are going to need higher prices to square the book. So, the international business as such will drive the price, it might not be the small Indian retail investor in this round, I think they will continue to buy with whatever they can do, which is great, even at higher prices, I think they will continue.
But I think it is going to be the large institutional investors which right now have nothing or hardly anything which will increase their positions, like the central banks increasing their positions and that will mean the prices will have only very short and shallow dips before it goes to higher prices.