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Gold price bolstered by global politics not fundamentals: Polymetal CEO

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Gold price bolstered by global politics not fundamentals: Polymetal CEO

A "totally unpredictable" gold price is being jostled by global politics, leading to volatility and a bias to potentially more medium-term upside, according to the CEO of Russian gold producer Polymetal.

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As the tussle for power between the US and China continues in the form of tariff disputes and fears of a "no-deal Brexit" batter sentiment, gold has been the main beneficiary. The metal has continually headed higher, testing six-year highs around $1,540/oz.

In a recent interview with S&P Global Platts, Polymetal CEO Vitaly Nesis said "global politics are definitely taking center stage [right now]. As you see, the trade war between US and China has largely driven the most recent uptick in gold prices. Clearly expectations [of] lower interest rates also plays a role, but [I] would say that politics is more important."

The market is now starting to build a case that gold is in a bull run, have started the year around $1,280/oz, with the metal spot bid around $1,540/oz at the time of writing.

The bull run "has already started, we are technically in a bull market and it looks like the industry will enjoy the spot for maybe half a year, or maybe more, Nesis said. "Beyond that it's very difficult to predict the political developments between the US and China, which will clearly be key in determining the future direction of gold prices."

Without a resolution to the ongoing trade tit-for-tat gold can only head higher, he added.

"Clearly the scenario in which gold prices continue to rise is the one where the US and China cannot come to an agreement and the trade war escalates, leading to sever repercussions; first in those two economies and then across the globe," Ness said. "I think this is a bullish gold scenario."

He cautioned that with the flurry of excitement currently circling the gold market, some may be hasty to start adding production to their portfolio in a race to grab more profit.

"I think we will see given the rise in gold price, we will soon see some exuberance in the market with perhaps some companies rushing to build new mines because of high gold price. We will definitively not do this because historically projects initiated at the top of the cycle tend to have much lower returns."

He noted that the miner's strategy remains unchanged, focused on its core operations and better recovery techniques/technologies.

"It's not about having our hands full with regard to our current operations; it's about capital management and discipline," Nesis added.

In a recent research note, TD Bank said that from its analysis, "we see multiple event risks on the horizon that could serve as catalysts for a continued rally in gold."

These included an increased risk of global recession, the US Federal Reserve considering a cut in interest rates and overall unrest across the world.

Still, ANZ cautioned, "technically, gold is looking overbought, and we wouldn't be surprised to see prices pull back in the short term."

-- Filip Warwick, filip.warwick@spglobal.com

-- Ben Kilbey, ben.kilbey@spglobal.com

-- Edited by Richard Rubin, newsdesk@spglobal.com