Mike Norman, anchor, HardAssetsInvestor.com (Norman): Hello everybody, and welcome to HardAssetsInvestor.com. I’m Mike Norman, your host. We’re here for the second half of my interview with Miguel Perez-Santalla, vice president of marketing for Heraeus Precious Metals Management. Let’s talk a little bit about gold.

When we spoke the last time … platinum, palladium, rhodium you mentioned … those markets crashed, but gold has held up relatively well; we’re still hovering around the $900 level. Is gold a different story here?

Miguel Perez-Santalla, vice president of marketing, Heraeus Precious Metals Management (Perez-Santalla): Well, gold is a different story because, opposed to the other three metals ... like the other three metals are industrial metals ... gold is a financial asset, and it’s still looked upon as such. But that is still not the major consumer of gold; so right now it’s being held up by investment money. Now I think everyone who was waiting for disaster has already bought gold, so it remains floating around the 900 level. It hasn’t been able to break through to 950, and it’s just very toppish here, but the price can remain here for a while as long as people don’t have confidence in the market.

Norman: You’re talking about confidence in the stock market?

Perez-Santalla: Right; once confidence returns into the stock markets or the bonds or whatever, or they have better earnings somewhere else, they will abandon gold because gold does not earn interest. The other thing is that the reason the price will come off once they start doing that is also that the biggest consumer of physical gold in the marketplace is the jewelry market, and that market has essentially died. The consumption of gold is minute compared to historical levels.

Norman: But if people have confidence returning in the market, isn’t that the same thing as saying they have confidence in the economy, and if so, maybe they’re doing a little bit better; maybe they can afford to go out and buy some more jewelry?

Perez-Santalla: Yeah, but there are certain price points on product, on jewelry, that people will buy gold. In other words, people think something’s worth a certain price, so when they go to the jewelry store and they see that price - "I’m not paying that - and they’ll go to another product. That’s what’s happening – the jewelry market has begun making lower-alloyed products that look prettier, they look nice, things that replace platinum, things that look like gold, and people go to those levels and buy those price points.

Norman: Very interesting. Now what about … because hand in hand with this confidence theme that you mentioned, for me it’s monetary policy, because a lot of people who bought gold or who are bullish on gold now say because of what the Fed has done – large expansion in its balance sheet, flooding the financial system with liquidity – that we are facing down the road what could be a hyperinflation.

However, that the Fed has been very much on the defensive about this and sensitive to these criticisms, to me suggests that at the moment, when they do feel the economy is picking up traction, they’ll reverse monetary policy, they’ll start tightening. What sort of an effect does that have? I think that will have a bearish effect on gold.

Perez-Santalla: I totally agree with you. I think it will have a bearish effect on gold, but I think that the dollars that are out there are being consumed and they’re being used. So that’s why we have no sense of inflation, and you see it in the prices of goods and services; they have not really gone up. I don’t see any indication that they will go up. The money is already in the system, so I don't see that happening. So if there’s no real inflation, we’re not going to see gold take off. To top it off, if there is, what earning do you really have?

Norman: That’s a great point, and it’s a point I’ve made before. Now look, in the last cycle … which bottomed out in the late ’90s, where gold hit about 250 …n this cycle, if we do come down, where do you see the level that for you would be a very solid bullish level?

Perez-Santalla: I started in this business in the early 1980s, so I always refer back to there, because people act the same way; we’re all humans and we all react the same way to certain things. So I think that confidence doesn’t come back as strong as people would want it to, so I think it’s going to go over a time period.

So in the short term, I could see gold in December coming down to around $700, and at that level the jewelry market will pick up again, so it will buoy it and hold it up between 700 and 800. In the longer term, it should come off, or if there’s inflation, maybe it will hold up around there. Those are harder things to see of course, so I’m just guessing.