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Geopolitics trump fundamentals in 2015, likely bull year for gold price: MKS

Dubai — Geopolitics and the market's view of risk, rather than fundamentals, will push the price of gold higher this year, according to Swiss refiner MKS.

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Speaking at this year's Richcomm Commodities Outlook in Dubai Sunday, CEO of MKS in Dubai Frederic Panizzuti said the market's reaction to the possibility of a renewed euro crisis, fallout from the Russia-Ukraine standoff, as well as interest rate hikes in the US, will all add to gold's appeal as a safe haven for investors in 2015.

"We have put fundamentals aside in our gold outlook for 2015," Panizzuti said. "Geopolitics, the perception of risk and even emotional risk from investors are the main drivers this year."

MKS is one of the world's largest gold refiners.


Panizzuti targets an average gold price of $1,292/oz for 2015, with a high of almost $1,400/oz.

The London Bullion Market Association Gold price settled at $1,241/oz Friday afternoon. It started the year at $1,184.25/oz.

FUNDS, NOT PHYSICAL, SUPPORT GOLD

Although gold has performed well so far this year, Panizzuti said it has been largely Exchange Traded Funds investing in the precious metal rather than physical demand that has driven the market so far.

"India and China are not buying right now, our books are not full," Panizzuti said.

"But we expect to see some buying from March and April onwards."

Platts reported earlier this year that the price paid for gold in India was at a discount to the international spot rate for over two weeks in January, by as much as $3/oz, due to weak demand and high international spot prices.

Physical gold is also believed to be at a discount in Turkey, which is a key exporter of the precious metal to the important Indian and Chinese markets.

India moved back to a premium January 27 as international prices started to come down.

It was assessed by Platts February 6 at a $1.50/oz premium to the London spot market.

India moved into the wedding season this month, which traditionally sees large buying of gold for ceremonies across the county.

China and India together represent over 50% of global gold consumption.

They are believed to have consumed around 850-950 mt each in 2014.

Yet not all investors are as optimistic on the gold price this year.

On the sidelines of the conference, one fund source said he believes gold will average $1,170/oz in 2015 on the back of strong global production and weak demand.

"[Gold] mine production was up 2% [in 2014], whilst jewelry demand was down 11% globally," he said.

Chinese jewelry demand was down 33% on 2013, the source said. Jewelry consumption accounts for 60% of gold demand globally.

'CASH IS KING'

"In a real crisis, people want cash," said Junaid Khan, head of trading at the National Bank of Fujaira, also presenting at the event.

"We saw in the immediate aftermath of Lehman Brothers gold prices fall, as it did in the last euro crisis when Cyprus had to be bailed out," Khan said.

"In a time of real crisis, liquidity is prioritized and gold suffers." Khan targets an average gold price in 2015 of $1,175-$1,185/oz. He said he is "cautiously bullish" of gold's performance in 2015.

However, another attendee said at the end of Sunday's conference that cash can also mean "crash," in reference to the unprecedented levels of quantitative easing in recent years that could lead to serious inflationary troubles further down the road, and thus support for the gold price.

--George King Cassell, george.king.cassell@platts.com
--Edited by Jonathan Fox, jonathan.fox@platts.com