Craig Smith/Frank Holmes CNBC Morning Call Summary
By David Bradshaw, Editor RMP
Nov. 10, 2006
CNBC: China central banks hint of dollar diversification and gold goes crazy, what's behind it?
SMITH: China is a part of the reason. They have 1.3% of their $1 trillion dollar reserves in gold already and may double to 2.4%. In comparison, the European central bank holds 26% in gold, so just a 1% shift by China will create a huge demand. We also have petro-dollar flowing into gold, as Frank has said in the past. I agree with Frank that a 10% diversification into gold is prudent.
CNBC: So that means China may increase from $13 billion to $24 billion in gold. What is your take on this Frank?
HOLMES: Over the next 12 months we see gold with a $50 downside risk and and $100 upside potential. We see this as a combined result of China and India ("Chindia"). Also driving gold prices up are comments from Russia's taking oil revenue and adding gold to reserves.
SMITH: Recent comments by Alan Greenspan also support the diversification by central banks and investors away from the dollar and into the Euro. The trend is away from dollar holdings into all commodities. Also, Japan hold 72% of it's reserves in dollars.
CNBC: Is there a historic inverse relationship between gold and dollar?
HOLMES: Yes, 80% of the time, 20% of the time they can move in the same direction. We have reduced our cash holdings, so we remain modestly bullish on gold in the next year.
CNBC: So what is your outlook for gold going forward Craig?
SMITH: I am a little more bullish than Frank (who has called for $650 gold by the end of the year). I am looking for $725-$750 gold by year end. I think 2007 is going to be a very good year for commodities and gold. I see nothing to support the dollar as we face a major changes of leadership in Washington and the real possibility of the dollar retesting it's 1992 lows.
HOLMES: Since we are in the midst of the holiday season, my recommendation is to buy gold coins for the children and to buy gold jewelery for you (CNBC hosts)
CNBC: Ha! Flattery will get you everywhere gentlemen!
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