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China is supporting the gold market, at least with bullish talk
Gold and Silver Rally Will End, Trader Says
By Richard Milne
Financial Times, London
Wednesday, May 10, 2006
http://news.ft.com/cms/s/c404c338-e04c-11da-9e82-0000779e2340.html
The bubble-like levels of gold and silver prices cannot be sustained,
according to the head of the world's largest precious metals trader,
as bullion surged through the $700 a troy ounce mark for the first
time in 25 years.
But Helmut Eschwey, chief executive of Heraeus, a family-owned German
trading and technology group, said prices in platinum and some rarer
precious metals, all at or near record highs, were justified by
demand and low stock levels.
"The rally has been enormous [but] it can't go on forever," he told
the Financial Times. "Silver will be the first to fall. Gold will not
last at this level. It is different with platinum because there is
industrial need."
His comments carry weight because Heraeus, based just outside
Frankfurt, has been in the precious metals business for more than 150
years and makes annual revenues of about 7 billion euros from
trading.
It is also unusual in that it has positions in all parts of the metal
cycle, from refining and recycling to making products for industries
such as automotive, semiconductors, and telecommunications.
The group also has divisions making sensors for the steel industry,
dental products, optical fibres and specialist lighting.
Gold prices have risen from $600 an ounce in the past month and by
more than 250 per cent in the past five years, while silver and
platinum have recorded strong gains.
Speculators such as hedge funds have been blamed for a large part of
the rises and Mr Eschwey said he thought, by jumping on a bandwagon,
that they had had an effect.
He said it was "impossible to predict" when the bubble would burst
for silver and gold but that it would take place. The situation is
clouded because industrial buyers are trying to put back their
purchases of precious metals but cannot do so forever and are
starting to buy at the record levels.
The easiest way to prick the bubble would be for central banks to
release some of their huge holdings in gold, Mr Eschwey said.
"There is a big stock in gold; there is none in platinum," he added,
justifying his belief that platinum prices will stay strong. "I
believe in the long run there will be a shortage of platinum."
The metal is predominantly used in the production of catalysts for
cars and other devices as well as jewellery.
As a privately-owned company with 188 family shareholders, Heraeus,
which trades from Hanau in Germany, New York, and Hong Kong, is
careful to monitor risks when it trades and closes each of its
positions every night.
"Our business model is defined in a way that we have no price risk
and a high stability in earnings," Mr Eschwey said.
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