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Contrarian View On Gold & Silver Prices: "The Bubble Will Burst".
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 from trading.
It is also unusual in that it has positions in all parts of the metal cycle, fromrefining 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 inthe past month and bymore than 250 per cent in the past five years, whilesilver and platinum have recorded strong gains.
Speculators such as hedge funds have been blamed for a large part of the risesand 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 asjewellery.
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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