Dollar gold price could go below $1,000/oz for short period: Natixis

June 29, 2015

London (Jun 29)  The dollar gold price still has room to move lower, below $1,000/oz for a short period of time, Natixis analyst Bernard Dahdah told Platts Monday.

 In an email Dahdah said that, "even under the stress of the situation in Greece, the price of gold hasn't benefited much. The market is fixated on the potential interest rate hike by the Federal Reserve. As we get closer to this hike so we expect gold prices to drop gradually."

 Gold benefits from a low interest rate environment as a non-yielding asset class.

 The turmoil in Greece, where a potential default on national debt and in turn possible exit from the eurozone has had a near-zero knock-on effect to the gold price in dollar terms.

 Traditionally such a scenario would have prompted safe-haven buying of the metal.

 Dahdah said the all-in sustaining production costs of gold -- per troy ounce -- are in the area of $950/oz with cash costs around $710/oz, "so there is still much room for the price of gold to drop."

 The London Bullion Market Association Gold Price settled Monday morning at $1,176.50/oz.

 "If the Fed surprises us by announcing an interest rate hike sooner than expected -- or stronger than expected -- then I think prices could drop for a short period below $1,000/oz," he cautioned.

 However, the analyst believes, as many else in the market do, that should this happen then key physical markets China and India will come to the fray.

 "Chinese demand could return strongly to support prices; Chinese investors enter gold as a buying opportunity as opposed to the west where we measure the opportunity cost of holding the metal and safehaven demand ... [as such] China could return to purchase gold if prices drop significantly," he said.

 For a number of months Platts has been reporting subdued physical demand from both China and India; combined they account for around 54% of global physical gold uptake.

 One banker in Hong Kong on Monday put the Chinese premium, paid to the international dollar price, around one dollar.

 This was down from around $2.5 at the start of last week.

 In India the situation was worse, with a discount of between $5-$7/oz currently being heard on the ground

Source: PLATTS

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