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Is Gold Overpriced? This Bullish Firm Thinks So

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(Kitco News) - Even though geopolitical tensions could push gold to much higher levels, currently the precious metal remains overpriced, says one expert.

“Gold has the ability to test $1,400 by the year-end,” Barry Canham, CEO of INTL FCStone Commodities DMCC and global head of the Precious Metals division, told Kitco News in a phone interview last week.

The rally has pushed gold well above $1,300 in the last few weeks, with the new price levels looking quite sustainable at this point, Canham noted, explaining that once gold broke the key psychological level, it locked into some positive momentum.

“There is safe-haven demand in the market. Gold is performing really well. This rally doesn’t surprise me and it wouldn't be a shock to see higher prices before year-end,” he said.

“Instability in the world could fuel prices higher — gold could see $1,500. A few underlying issues around gold could drive it there, with geopolitical tensions being the main area of concern.”

Yet, Canham is a believer that gold is currently overpriced by around $50 due to geopolitical tensions, which are propping the precious metal higher. “Gold trading around $1,275-$1,300 would be a fair price for the year. But, the last $50 dollars is really on the tensions side,” he said.

Canham also described the physical gold trading action this year as pretty “dull,” noting that it is what surprised him the most. “There hasn’t been as much interest as I have anticipated,” he stated.

“We are seeing more supply than demand this year. With gold price [above $1,330] there is not a lot of demand. I don’t think the gold price is being driven by demand, it’s being driven by safe-haven buying,” Canham explained. “One of the biggest buyers of gold is the jewelry industry, which often seasonal and is the most prominent in Asia. Occasionally you get a slowdown because people are price-sensitive. Asian buyers look at gold more as an investment that they can use down the line to pay for their house.”

Gold traders are only seeing such returns because of the weak U.S. dollar, he added.

Plus, the U.S. Federal Reserve is being perceived as less aggressive these days, with many market participants questioning the possibility of a December rate hike. Canham agreed, stating that the Fed has been toning down its rhetoric. “December hike might not be a possibility. Can’t see real need for another rate increase.”

Canham’s comments on INTL FCStone’s gold outlook come as the company reports impressive results from its unique online gold trading platform PMXecute+, which more than tripled the amount of gold traded since its last results in June. 

“It’s an online physical premium-based gold trading platform that allows participates to fix the premiums on gold in various locations around the world,” he said.

Since its launch in February, the platform already saw 39 tons of gold traded, which represents more than $1.6 billion in value. The results are also three times more than the 10-ton figure revealed in June.

“It’s the world’s first platform that allows the professional bullion market to trade gold in various locations around the world,” Canham pointed out. “Clients can agree on delivery date and method of transport online.”

The key technological breakthrough of the platform is that it acts as a middleman, saving users lots of time and limiting odious paperwork.

“At the moment, for someone, for example, in Hong Kong to order gold from Switzerland could require as many as 25 phone calls between all the parties, including refineries, security companies, shipping agencies, etc. Then, you have to create manual invoices,” he noted. “The platform does it all through the system a lot quicker. Actual time is cut down to the minimum.” 

With a fast-growing user base, the most active regions are currently Hong Kong, Thailand, and Singapore, according to INTL FCStone.

Canham added that future plans involve making the platform more accessible and attractive to smaller gold trading bar markets, which are currently more predominate in the U.S., Canada and a number of European countries.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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