Deutsche Bank’s Brebner: Gold Headed To $2,000/oz. In Early 2013 Amid Inflationary Bias By Central Banks

July 11, 2012

DB’s head of metals research discusses prospects for gold prices over the short and long term, including insight into the Fed, QE3, China, India and Europe.


Daniel Brebner is head of metals research at Deutsche BankHe has consistently been cited as one of the most accurate metals forecasters by Bloomberg. HAI’s Sumit Roy caught up with Brebner in DB’s London office recently to discuss the latest developments in the gold market.

Be sure to check out our interview archives for more commentary and analysis from other notable guests.

HAI: We haven't seen gold rally this year, despite all the negative headlines from the eurozone and even here in the U.S. This is in contrast to last year, when gold climbed relentlessly to its record high above $1,920 amid similar bad news. Why is gold behaving differently this time? Has it lost its safe-haven status?

Daniel Brebner: I don’t think it’s lost its safe-haven status. The gold price has been reacting to a risk-aversion environment, which is linked to perceptions of low growth globally. Growth issues have been emerging not only in Europe, but also increasingly in the U.S. and in China. This is creating deflationary pressures and deflationary risks, which is resulting in a liquidity squeeze.

You're getting a lot of investors moving from risky assets into the U.S. Treasury market, which has been the key beneficiary. So it’s been a function of two things—deflationary risks, which pushes people toward cash vs. assets—and liquidity, which pushes investors from, again, those risky assets into more-liquid safe assets. And, of course, the U.S. Treasury market is extremely deep in that respect.

So I think that’s one of the key reasons for gold’s poor performance in dollar terms. And I may just remind you that this is in dollar terms that we’re looking at this. If you look at the gold price in euros, or in Indian rupees, or Russian rubles, of course the performance is going to look very different.

HAI: So gold is being traded as a risk asset right now by many traders, in your view?

Brebner: I wouldn’t call it a risk asset. It’s certainly being traded as a secondary risk aversion-type asset, yes. It’s still very much a safe-haven asset. But in dollar terms, certainly it’s been underperforming other safe-haven assets, particularly the U.S. Treasurys or short-term U.S. Treasurys.

HAI: What do you see as the biggest driver of gold prices for this year? Is it the Fed, Europe or something else entirely?

Brebner: I think it’s likely to be, in the near term, actions by the Fed. We are heading toward two important points over the next couple quarters. One is the fiscal cliff in the U.S., which is the re-imposition of taxes or the removal of the Bush tax breaks. Then there is the debt ceiling issue that the U.S. will hit later on this year.

Combined with continued weakness in the U.S. economy, this could result in further actions by the U.S. Federal Reserve. The kind of actions I would be expecting would be accommodative policy measures, QE3 potentially being one of them. And this would underpin a new move higher in the gold market.

HAI: What factors do you think will dictate whether the Fed will initiate QE3?

Brebner: Certainly employment will be a key factor. If we see unemployment numbers start to tick up, then that will put further pressure on the Fed to act. Also, if there is a continued deterioration in the manufacturing space within the U.S., that will do the same. You might just note that the strength in the dollar, of course, is not good for U.S. exports. And I don’t think it’s in the U.S.’ best interest to have a strong dollar going forward. While it may not be explicitly acknowledged by the Fed, I think central bank would much rather see a weak dollar to help to support U.S. industry.

So it’s a number of factors which will push the Fed into taking some action. Now that may be somewhat limited by political issues. There may be some political hurdles to jump over before we do see that. And that’s one of the risks—if the Fed isn't able to act like it would otherwise do, because of political pressure.


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