In a Bloomberg audio interview, Steel said that this year the gold market has been under pressure and has experienced a rotational shift out of commodities in general driven by the constant chatter of a tapering off in QE and experienced very steep declines in mid April. He likens it to a rugby scrum pulling back and forth near the $1/400oz level, between ETF outflows and strong physical demand for coins and bars, notably from China.
Steel said that in the past few weeks the heavy ETF outflows have died down, and prior to this year they were mostly static. The peak for ETF's was 85M ounces at the end of last year. He says most institutions have already exited that wanted to get out.
Market chatter has been nervous about the unwinding of QE3. Steel points out that unwinding or paring back is very different than an exit. The Fed many need to do tapering for a long time before it ends their program.
Steel mentions that it was the jewellery market that drove the gold market in the past and now it is investment demand and demand from China. He believes gold will average is $1,542/oz and he is predicting a rally in the second half of the year up to $1,600/oz. Longer term, he is on record as saying that gold will rise to over $2,000/oz.
Steel has specific responsibilities for precious metals in HSBC and is one of the more astute analysts of the gold market working in the banks. He knows his financial, economic and monetary history.
Prior to joining HSBC in 2006, he ran the New York research department for Refco, a large US commodities brokerage house. Jim also worked for The Economist in the Economist Intelligence Unit covering commodity producing nations.
Unlike some widely covered ‘celebrity economists,’ Steel has a deep knowledge and understanding of supply and demand and the other fundamentals driving the gold market.