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G Chandrashekhar, Commodity Expert, says “some kind of less rational exuberance is building in the gold price trajectory. Look at the current economic situation, political situation, gold market conditions. All this taken together, does not justify this kind of a price therefore we need to be cautious. Investors need to be cautious. We have to be optimistic about gold prices in the second half of the year, but that should be tempered with extreme caution, at least in the short term.”

There are a lot of triggers for gold to go up. But what is your assessment? If we talk about the US economy, the kind of data that is coming up is very robust and the chances of the rate cuts beginning in the second half of this year also have started looking bleak now. What are the signs of gold stopping its run? Do you see that happening or do you see it is time for gold to shine and go beyond equities as well in terms of returns?
G Chandrashekhar: When was the last time that both Sensex and gold prices were moving in tandem and gold is above Rs 70,000 and Sensex is 75,000. I cannot recall a time when they were closer to each other or this close to each other. This is probably a great subject for research. Having said this, I strongly believe that gold has overshot to the upside. There is a combination of factors which has driven gold prices up.

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Well, of course, geopolitical uncertainty has enhanced the safe haven appeal. You have the expectation of the US Fed interest rate cut, continued central bank buying, ETF inflows have recently risen but more importantly there is a massive inflow of speculative capital. On the bourses, huge speculative long positions have been built. All this together, in my view, is exerting an exaggerated impact on prices and therefore I believe gold at closer to $2300 a troy ounce is completely, definitely overshot to the upside.

I suspect some kind of less rational exuberance is building in the gold price trajectory. Look at the current economic situation, political situation, gold market conditions. All this taken together, does not justify this kind of a price and therefore investors need to be cautious. Yes, we have to be optimistic about gold prices in the second half of the year, no doubt at all, but that should be tempered with extreme caution, at least in the short term.

Now, if you are heavily into gold into your portfolio and seeing huge profits in gold as far as your portfolio is concerned, is it the time to rebalance and maybe shift that money to some other categories, maybe equity or debt? Do you think if one is a long term investor, you can stay put in it and maybe just look at silver if you do not have that in your portfolio because there the run up is much more promising than gold. What would you say?
G Chandrashekhar: Before I answer that, again two things. One is a disclaimer, I am not a trader, I do not hold any trading position anywhere in any commodity and I am actually a student of the market and I must say with a little bit of pride, I am a diligent student that is number one. Number two, look at the current gold prices before we talk of the future trajectory.

My sense is that at least a $200 risk premium is built into the current price. Imagine a scenario where tomorrow because of US intervention there is a ceasefire announced between Israel and whatever, Hamas or in the Gaza region, there will be a very sharp correction in gold prices and therefore when prices rise, it is in the nature of the market, well there are signals that these geopolitical tensions may abate, the less committed bulls in the market will be very quick to exit and therefore, that is a risk we need to understand. At the same time, if the war were to escalate, obviously, it will fuel a further price rise in gold, that safe haven status will enhance, all that is understood. The next point I want to make is look at the physical demand. Physical demand is being destroyed. At least in price sensitive markets like India, people are moving away from gold and scrap sales on the other hand are increasing. Central bank buying is the only thing that is supporting the market. But I don’t know how long and how far that will continue, subject to different viewpoints.
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Now, coming to the question where do I see prices going and where will I put the money? I do not have the money. I am not going to put any money. But in the short run, I expect and I will not be surprised if gold starts to correct from the current levels of closer to $2,300 by at least $100, $125 because there will be profit taking. People will liquidate their position, book their profit, and probably then reinvest in the market again.

But in the second half of the year, at least, I am clear in my mind, the rate cut is not going to be any time before June and once the rate cut cycle starts, the dollar will weaken and gold will again get one more boost, that will be a more solid boost in my view and that can potentially propel gold higher. But that will be in the second half of the year. But again, as prices keep going up, physical demand disruption will become increasingly inevitable, which is something all of us have to remember. All I want to say is that the market cannot defy fundamentals for a long time,

What could go wrong in terms of the Indian economy and the Indian state where gold prices can just reach up to Rs 1 lakh?
G Chandrashekhar: With due respect to you and to everybody else, this is the kind of leading question that leads to a speculative fervour. You are showing a carrot to people at a distance. I strongly feel that gold is not going anywhere near Rs 1 lak, anytime soon. This is the first proposition I want to make.

Second, what if the rupee were to devalue and depreciate? Today it is 83. What if it becomes 93 six months from now, one year from now? It is not going to happen. I am talking about a hypothetical situation that can drive domestic gold prices higher. I do not see international prices going far higher which will have an impact on Indian rupee prices that would take gold to Rs 1 lakh per 10 gram, I do not see that situation at all till the end of the year, if prices ranged between 68,000 and 72,000 or at best 73,000, provided RBI continues to support the rupee and does not allow it to depreciate.

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