It has surprised many – if not most – that whilst competing political tensions have escalated – in the Russia/Ukraine and Israel/Palestine theatres – the gold price has subsided and with that its cohorts, the PGMs and silver. These are the bellwethers of fear and tension, yet they fall.

Q: Now, why?

A: Because it is all a game. We do not believe this will boil over into a major military conflict, rather a fudge, a compromise with rhetoric coming out ahead. What we do believe is that the world economy is strengthening, that interest rates will rise and stock markets will gain ground. Not so commodity prices, perhaps, because they also ran ahead of themselves. Yet the precious metals have probably done enough, certainly for now.

So, does the WIM theory – that everything above $1000 is political froth – still hold good? We need to keep reminding ourselves that these are high levels, last seen 18 months ago and before the world economy staged a recovery of sorts. We continue to be reminded that the 9-10% gold rally this year so far, beats the gain for equities, commodities and Treasuries. Goldman Sachs does not back down on gold going lower as the economy improves. Swimming alongside is Société Générale. So GS goes for $1050 by end 2014 and SG $1245. WIM opts for $1200.

Yields on US ten-year Treasury bonds, too, are falling, down to a 2.5% from 3.0%. India’s performance matters to the gold market, even more than that of China. It not only imports a substantial amount, but processes and re-exports for a profit. The catch? Much also disappears under the bed, playing hell with the balance of payments. So when the government stuck on a 10% import duty last year, it dented the inflow, like down from 1014t in the year to March 2013 to 670t in like 2014. It is a difficult balance and India’s bank gold holdings are only 5.4% of foreign exchange reserves. The government is not backing down in its resolve over the import duty. A sign of hope is that the country’s export growth is moving up, but so are gold imports, despite the levy. At $3.12bn in June (we make that 60t), they are up 66% on like 2013.

What the World Gold Council thinks. The WGC has treated us to its H1 2014 investment commentary. It would test a Philadelphia lawyer so we will not bore with it except to summarise: the metal is up 9.2% this year, to the surprise of most analysts. Investment demand is tepid. Now is a prime opportunity to add, given high bond issuance, tight credit spreads and record low volatility (of what?). So says the WGC.

The London Gold Fix. Sharps Pixley, a name synonymous with London gold trading, rose from the ashes to command a niche presence in both research and marketing. Its CEO Ross Norman knows the scene and thinks the London ‘Fix’ still does the job. He makes the simple case that via its five member firms, it reaches many clients before a decision on price is reached. It is something like an auction and provides a venue for large deals. A good summary.

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About David Hargreaves

David Hargreaves

David Hargreaves is a mining engineer with over forty years of senior experience in the industry. After qualifying in coal mining he worked in the iron ore mines of Quebec and Northwest Ontario before diversifying into other bulk minerals including bauxite. He was Head of Research for stockbrokers James Capel in London from 1974 to 1977 and voted Mining Analyst of the year on three successive occasions.

Since forming his own metals broking and research company in 1977, he has successfully promoted and been a director of several public companies. He currently writes “The Week in Mining”, an incisive review of world mining events, for stockbrokers WH Ireland. David’s research pays particular attention to steel via the iron ore and coal supply industries. He is a Chartered Mining Engineer, Fellow of the Geological Society and the Institute of Mining, Minerals and Materials, and a Member of the Royal Institution. His textbook, “The World Index of Resources and Population” accurately predicted the exponential rise in demand for steel industry products.