Hedge fund manager warns of gold price correction

Date: Thursday, September 22, 2011
Author: Frank Tang, Reuters

Gold is overpriced and could fall below $1,000 an ounce once bullion loses its safe-haven advantage over metals with stronger fundamentals, said the head of European commodity hedge fund Tiberius Group.

Christoph Eibl, CEO and founding partner of the Swiss firm, said that gold investment currently offers investors a psychological protection against economic uncertainties, but gold "has nothing to offer" in the long run.

Eibl said investors are better off investing in platinum group metals, with their market fundamentals more attractive because both platinum and palladium are likely to remain in or close to deficits.

"From a strategic long-term perspective, you don't want to be investing in precious metals," referring to gold and silver, Eibl told Reuters Monday on the sidelines of the London Bullion Market Association (LBMA) annual conference in Montreal.

"The moment when you have no ETF buying or investment buying, who would buy your gold? Not the Indians, they will not jump in at these levels," Eibl said.

Asked how low the gold prices could fall, he said "Below $1,000" an ounce, which better reflects bullion's production cost.

Spot gold traded at around $1,780 an ounce on Tuesday. The price of gold has rallied furiously in the past ten years. The metal traded at just $250 in 2001.

The popularity of the gold-backed exchange-traded funds (ETFs) has provided a significant boost to the yellow metal's bull cycle.

India has traditionally been the world's largest consumer of physical bullion.

Eibl said that, from time to time, his firm maintains short positions to bet against any upside in the price of gold.

"We know it's too dangerous to stand in front of a truck that may run you over," he said.

Eibl noted that, ten years ago, silver was trading at around $4 an ounce when the silver market was at a 10 percent deficit, and now silver is trading at around $40 with a 30 percent market surplus.

"I don't have to be a rocket scientist to see that something is going wrong," he said.

Unlike gold, however, PGM exchange-traded funds are not liquid enough to significantly underpin buying, Eibl said.

Tiberius trades futures contracts in commodities, spanning grains to metals to energy. It manages around $2 billion in assets mainly invested by pension funds, insurance companies and family offices.