Managing director for the World Gold Council says yellow metal headed for 12th straight bull year on back of centrals banks, eurozone woes and monetary easing.
Marcus Grubb is the managing director of investment for the London-based World Gold Council, where he leads both investment research and product innovation, as well as marketing efforts surrounding gold's role as an asset class. Grubb has more than 20 years' experience in global banking, including expertise in stocks, swaps and derivatives. After the WGC released its Gold Demand Trends Survey this month, HAI Managing Editor Drew Voros spoke to Grubb about the current state of the gold market and what is behind the yellow metal’s recent run-up.
HardAssetsInvestor: Gold and silver are peaking at three-month highs. What’s behind this? There hasn’t been a lot of news going on in the last couple of months and gold has been pretty stagnant. Why the sudden move?
Marcus Grubb: A number of factors are crystallizing to create a path of least resistance that now is upwards rather than downwards. One of them is the fact that looking into the second half of the year, talking to investors around the world, there’s still a lot of concern about the health of the financial system and the eurozone in particular. And also some challenges in the U.S. around the fiscal cliff and the sustainability of the economic recovery. However, it is clear that the U.S. is recovering better than many other Western countries around the world.
This has led investors to continue to weight towards more cautious asset allocation, increase their exposure to gold. And I think to some degree they may be diversifying from overweight positions in Treasurys and U.S. dollars.
HAI: Are you expecting gold to appreciate for the 12th straight year?
Grubb: Yes, we are expecting this to be a 12th year of the bull market for gold. And we also expect a better second half in terms of the supply-demand dynamics of the market. The first half of the year was quite challenging. We saw a small decline in gold demand. A lot of that was driven out of India. The Indian market has had some specific challenges this year—import tax, strikes in the jewelry sector—and then most importantly, a weak currency against the U.S. dollar, and one of the weakest in Asia against dollars. Gold has been very expensive in India as it’s been consolidating in dollars for about a year. It’s actually been near an all-time high in terms of rupees, which has had a dampening effect on gold demand for the first half.
In the second half of the year, you usually see stronger demand in India. We have the stocking period ahead of the Diwali Festival in October and November. And then we have the end of the monsoon rains before that, and usually you see incomes increase in rural areas and gold purchasing picks up in September, October as well. The rupee will probably still be weak, but we do think you should see a seasonable pickup and demand in India. And that will, among other things, help demand in the second half.