Geopolitical Tensions and Central Bank Propelling Precious Metals Purchases: Peter McGuire

“I don’t think that’s going to happen anytime soon and I think the degree of central bank buying has been overwhelming and retail has been right against that. So, I think it’s just one-way traffic and that’s what it feels like. At the moment Onwards and upwards,” says XM Australia CEO Peter McGuire.

What, if at all, will that mean consolidation or a slight drop in the price of gold because right now it only knows one direction.
Peter McGuire: sure I mean we are aggressive on buying and since October last year we have seen an aggressive move to the upside.

We had a low of 1810 or so. Now we are on futures running at around 2700, 2685. It has grown incredibly. What derails it? Well, I really don’t know. It’s so hard to try and recognize something. You will need to see a big push up in the US dollar. I think you will need to see all geopolitical tensions subside. And I don’t think that’s going to happen anytime soon and I think the degree of central bank buying has been overwhelming and retail has been right against that. So, I think it’s just one way traffic and it seems to be onward and upward at the moment.

How is it that you’re looking at the overall supply-demand dynamics, like another expert, Mr. Ray, just talked about how geopolitical tensions are driving asset classes as well. Well, it’s happening with equity too. So, just looking at this parameter, what I want to understand about the demand is because, I mean, generally and traditionally, if an asset class is in bubble territory or has seen a big bull move, the demand is going to be a little bit lower, but that’s gold. Doesn’t seem to be happening in the case.
Peter McGuire: I think of a couple of things. First of all, central bank demand globally has been extraordinary and has not been more than in the last two weeks, in the last decade and certainly in the last four or five years, it has been tremendously hungry.

Second, there is a high degree of trade. It is not just a paper market, but physical and certainly in India and China and countries in Asia and the Middle East it is a store of value and has been very much a part of their entire culture for millennia.

While we’ve got bullishness in a lot of asset classes, we’ve also got a degree of fear in the market and the one-way traffic for the gold market has been phenomenal over the last year and people have bought where they’re saying that 2200 was a new high, 23, 24. Now we are 2650, just shy of 2700.

It’s just extraordinary. So, yes, there may be a pullback, but I think the overall appetite is very, very solid and it looks like, again, another speaker says central banks are cutting rates and the attraction to asset classes like gold has been phenomenal. . .

Demand for gold, especially from central banks, is becoming very strong. But is it expected to affect other precious metals, silver and the likes as well?
Peter McGuire: I think silver, yes, absolutely. The silver market has been underinvested for the better part of two decades.

And I think $32 per troy ounce is extraordinarily cheap. If you look at the ratio of gold to silver, I think there is more upside in silver than there would be in gold. And once it starts to bite, it’s really going to go onward and upward because quite simply, you have huge demand, not just from a jewelry perspective, but for the industry.

Industry needs silver and their appetite has certainly not waned in any fashion or form. So, I think the overall momentum for the silver market over the next year-and-a-half will light out. I can’t say what ceiling that will be, but $35 should be the new target and let’s see how aggressively it actually hits that range.

When it comes to lab-grown diamonds, guess what? I’m wondering if you have any thoughts on how you’re looking at it, especially from a global perspective, is it a very urban type of consumption? Is it affecting the overall demand for natural diamonds?
Peter McGuire: Well, I think overall you have strong demand there and I can’t say that there has been a natural decline. Everyone has got their own opinion as far as the diamond market is concerned. Many see it as a storehouse of wealth. It is a huge industry. It cannot be disputed. And it just depends on what one’s appetite is. Are they looking for diamonds to achieve intrinsic value and is that from an investment standpoint, from a capital appreciation standpoint, or are they going to look at other markets that I think precious metals have more upside and more potential? So, it just depends. I am not a real expert when it comes to the diamond market, but I am very conscious of its impact on the overall sector.