JULIAN PHILIPS: Yes I would agree with that 100% - the oil price is really the focal point of energy inflation - and alongside food inflation, the world is facing some rather difficult problems - very difficult to cure by raising interest rates. You have to get those prices down and rising interest rates certainly won't do that in the developed world. So yes, the actual fighting in the Middle East is not that pertinent. It is the effect of that fighting on oil supplies and I believe that OPEC and Saudi Arabia are now pumping any shortfall that comes out of Libya - which I believe is about 600,000 barrels as opposed to their usual 1.6 barrels a day. So the problem is contained, but the markets aren't accepting that - they're clearly trepidatious about what lies ahead.
GEOFF CANDY: And I suppose then we might see another move in the gold price if another country comes under threat or new unrest happens, if you will.
JULIAN PHILIPS: Yes I do think that, but not simply because of the oil price - the gold price reacts to the oil price only when that oil price affects global inflation, global stability and global uncertainty and it's through that medium that the developed world in particular, turns to gold. But we have to accept changes that have taken place in the market which are far more dramatic than matters in the western world and that is the surge in the Far Eastern demand, due to the rising number of middle classes. It's something we find great difficulty getting our minds around that 1.3 people in China - or is it 1.4 - that's twice the size of the Eurozone, plus the United States combined - and when the prospects of China doubling the size of its economy by 2020 and these are people who are taken from poor levels into middle classes and upper classes - then their capacity to buy gold increases absolutely dramatically. And of course the moment they look at gold they see financial security - they don't see an alternative to a stock market, or an alternative to this investment or that - they see gold as inflation proof and far better than bank deposits which are their usual means of saving. So I would put the surge in Far Eastern demand, including India, as being the main factor today in driving up this gold price.
GEOFF CANDY: I suppose it's an interesting question, because a lot of the focus is always put on - within the daily moves anyway or the short term moves in the gold price - on short term socio-political impacts and things like futures trading and what's going on in Greece for example with another ratings downgrade and concerns around the Middle East. How much of a bedrock then is that Chinese and Indian demand and how much of it is actually driving the price and how much of it is just forming a bedrock, if you will?
JULIAN PHILIPS: The figures out of China surprised everyone. I thought they were at 550 tonnes for last year - that's 340 tonnes from local production and 210 tonnes from imported gold, but the figure now comes out at much closer to 640 tonnes. Now this is from a very small start about three years ago and its burgeoning and because of that we look at the Far East as people who really don't know what a US interest rate is or a credit default by Greece and therefore they will buy irrespective. They are simply buying for financial security for their families and their children and they're not affected by those. But in the developed world which was the main source of demand for gold - investment demand in particular - factors like the futures - futures and options - I personally don't think that affects the gold price - only about 5% of the transactions in those markets actually involves the physical movement of gold - the rest is just a buy and sell - it's just the movement of cash.
However, the Greece story is something quite different - understandably people believed that the rescue package for Greece would do the trick. It now turns out that it won't and it won't do the trick for Ireland because they literally can't gather that much money to repay it and therefore there has to be an extension of the time given and the reduction of the interest rate charged - otherwise its literally just unsustainable and they'll have to restructure somehow, whether it goes to a default - I'd be very surprised if it does - but I do think that they haven't done their sums properly in the light of the difficulties that Greece is having at the moment. And possibly Ireland and possibly Portugal and that created uncertainty in itself that they got the sums wrong. It doesn't mean to say that the euro is going to collapse - I don't think that will happen at all - but the foundation that the Eurozone stands on has created tremendous uncertainty worldwide because of the events that are taking place now and of course the credit agency write-down of Greek debt to ‘highly speculative' - well that makes it a junk bond, doesn't it and therefore this sovereign debt crisis - we're looking at something far more alarming than a corporation going down. It has so many more structural impacts. So the uncertainty and instability that creates is driving Europeans towards gold - but I repeat - the main driver is Far Eastern demand as far as I can see.
GEOFF CANDY: Then when we're looking at the gold market, should we be focusing a lot more on the Renminbi price and perhaps the rupee price of gold than what it is doing in dollars and euros?
JULIAN PHILIPS: Yes that's what I do - the Far Eastern market touches a forelock to the dollar price, but we've seen in the last few days the euro price has behaved far better than the dollar price because the dollar has just been weakening like crazy - hitting 1.40 yesterday and there wasn't that much movement in the euro price - so
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