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-- Posted Monday, 9 August 2010 | | Source: GoldSeek.com
"It's no longer just an energy market. It's no longer just a metals market. It's just one commodities market," says John Licata, chief commodity strategist at Blue Phoenix, Inc. John thinks that the lines between commodities will continue to blur as companies diversify their metals and minerals holdings. He also thinks gold will approach $1,375 by year-end, and that a major uranium producer will soon be snapped up by Asian interests. It's all in this exclusive interview with The Gold Report.
The Gold Report: The price of gold fell almost 5% in July. Do you think this is the time to buy? Or is it a sign the economy has found its feet and that maybe it's time to lighten your gold portfolio?
John Licata: I think this is a great time to get back into the gold market. The recent slide is a buying opportunity. We are still facing a very challenging economic environment as evidenced by recent remarks by various U.S. Federal Reserve speakers, including Chairman Ben Bernanke. I think the concerns regarding deflation are completely overblown. The fact that we're seeing higher energy prices is an inflationary tidbit that's getting left on the sidelines by investors. Higher inflation will definitely lift gold prices, and the renewed strength in the euro vs. the dollar is a bullish factor for gold prices too. And we're quickly approaching Indian wedding season, which starts in September; that has historically been a bullish time for gold prices. And, in recent years, many of the gold producers have not really had any big finds, which also bodes well for gold because there is less gold to go around.
TGR: Will the senior producers look to takeovers to boost their gold reserves?
JL: I think adding capacity through mergers and acquisitions (M&A) can be cheaper than finding more gold. Commodities in general have become a unified marketplace. By that, I mean the opportunities to increase capacity, reserves or output are better served through M&A.
TGR: In 2009, you called for $1,200 gold, and it hit $1,227 in December. How high are you willing to go this time around? And what's the timeframe?
JL: I have a $1,375 target on gold this year; it's a forecast I put out at the beginning of 2010. I'm still very comfortable with that forecast. We still have a long way to go before the end of the year. The fact that gold prices are still high compared to historical standards means that we've had an opportunity to sell off multiple times in recent months. Yet, we've always managed to find gold buyers on dips, and we're still hovering around $1,200. I think the sellers had their chance to drive down the price of gold and they're out. The 5% decline that we've seen in the gold price was not met by increased selling pressure—it was met by buyers looking for a cheap way to play the yellow metal. That $1,375 is still very much achievable this year.
TGR: What are your thoughts on silver versus gold?
JL: It's funny, we talk about gold so much but we don't hear anything about silver. I think silver is very interesting from a historical perspective and how it has traded in concert with gold. In my eyes, silver is the evil stepchild of gold; and if gold prices move towards that $1,375 level, it's hard not to think that silver prices will go along for the ride. If you believe that we're going to have an economic recovery, then you have to look at silver because silver is used in so many products and new technologies.
TGR: Moving to other precious metals, platinum and palladium prices move in tandem with global auto sales due to the amount of these metals used in catalytic converters. What are the prospects for those metals in light of the current global economic climate?
JL: I think palladium could see more upside. Many auto companies are moving toward cleaner standards in terms of emissions. That benefits palladium and platinum. Over the next couple of years, the entire auto market is going to change. I think companies that use palladium and platinum for catalytic converters are going to vie for supply contracts. Unlike the energy sector wherein there is an excess supply of natural gas, there is a very limited global supply of platinum and palladium.
TGR: What other metals show some potential?
JL: I think uranium is a forgotten metal. This goes back to what I mentioned earlier—it's no longer just an energy market. It's no longer just a metals market. It's just one commodities market. Uranium is a fascinating story—if we're talking about building nuclear reactors and having cleaner, more efficient energy sources, uranium falls into the category of metals that can do very well going forward.
TGR: Any thoughts you would like to leave us with today?
JL: I will say when it comes to metals—and I've said this before—China is not the saving grace for commodities. If you plan to get into any metal based on China's prospective growth, I just don't think that's the right strategy. I think you need to look at commodities from a global perspective; and while it's great that China is improving, any slowdown in the Chinese market will have an enormous ripple effect throughout the rest of the world. But that doesn't mean the rest of the world economies won't grow and come out of what is arguably the worst recession since the Great Depression.
John J. Licata is chief commodity strategist at Blue Phoenix, Inc., an energy/metals independent research and consulting firm based in New York City. He has appeared regularly in the media (CNBC, Bloomberg TV/Radio, Business News Network, Barron's, etc.) over the years for his insights and forecasts in the commodity spectrum.
After studying economics and graduating from Saint Peter's College (where he received The Wall Street Journal Award for economic excellence), Licata set his sights on Wall Street. During his more than 15-year career, John has held both trading and research positions on the NYMEX, Dow Jones and Smith Barney. Early in 2005, he founded Blue Phoenix, a leading independent research and consulting firm focused on energy and metals. John is also the Editor of The Commodity Chronicles, the Blue Phoenix energy and metals newsletter (click here to receive a 30-day trial membership). John is currently in the EMBA program at New York University's Stern School of Business, and was recently voted "Up and Comer Natural Gas Analyst" in the 2010 Institutional Investor All-America Research Team Poll. You can follow John on Twitter and LinkedIn.
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-- Posted Monday, 9 August 2010 | Digg This Article | Source: GoldSeek.com
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