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00:00PUTTING HIS MONEY. THAT IS COMING UP ON "BLOOMBERG < GO>." TOM: MAYBE THERE IS A THEORY TO GOLD. JAMES STEEL'S WITH HSBC, AND HE HAS BEEN BRILLIANT ON THAT LITTLE BLIP OVER TO THE RIGHT. JAMES STEEL HAS THE TATTOO SOMEWHERE ON HIS BODY. IT IS INFLATION-ADJUSTED GOLD BACK TO EISENHOWER. BRING UP THE CHART AGAIN, PLEASE, THE SINGLE BEST CHART. THERE IS NEXT IN -- THERE IS NIXON. UP WE GO. AND THEN THE GOLD BOOM OF THE 80'S AND THE LONG DEFLATION , BEAR STEARNS NAILING THAT DEFLATION. AND THEN UP WE GO. JAMES STEEL, GIVE US AN UPDATE ON GOLD. ARE WE GOING TO BE PEAKY AGAIN, OR WILL WE TURN HIGHER? JAMES: I THINK IT WILL LIKELY CHURN HIGHER. WE GOT UP TO $1300 LEVEL. THERE IS QUITE A BIT OF RESISTANCE, NOT IN THE TECHNICAL SENSE, BUT WE HAVE HAD BIG GAINS IN ETF'S THIS YEAR. THEY HAVE LEVELED OFF. WE HAVE HAD HIGH NEGATIVE INTEREST, SO IT WILL BE DIFFICULT POWER MUCH BEYOND THAT. TOM: WHAT IS YOUR MESSAGE TO GOLD BUGS? JAMES: THE BEST THING FOR GOLD, RATHER THAN TO LOOK FOR DEPRECIATION ON ANY ONE DAY OR ONE MONTH OR YEAR IS THAT IT IS PORTFOLIO DIVERSIFICATION VALUE. IT IS NOT CORRELATED TO OTHER ASSETS. THAT IS WHERE ITS STRENGTH LIES. AS FAR AS WHETHER IT GOES UP OR DOWN SOON, WE ARE MODERATELY BULLISH, BUT IN THE LONG-TERM IT IS THE DIVERSIFICATION ARGUMENT THAT IS THE MOST POWERFUL. IT IS AN INSURANCE POLICY. VONNIE: WHAT IS THE DRIVER OF GOLD PRICES AT THE MOMENT? CURRENCIES, EMERGING-MARKET WEAKNESS? JAMES: IT IS A COMBINATION OF DOLLAR WEAKNESS UP TWO VERY RECENTLY. THE DOLLAR BOUNCE ACT, AND -- THE DOLLAR BOUNCED BACK, AND NEGATIVE INTEREST RATES. AND THE SHIFT, THE PERCEIVED SHIFT IN FED POLICY. THE DECLINES WE HAD LAST YEAR WERE PREDICATED ON MAYBE TWO RATE RISES LAST YEAR. FOR THIS YEAR, WE GOT ONE LAST YEAR, AND WE NEED TO GET TWO THIS YEAR. WE HAVE CLAWED BACK FROM HAVING 225 BASIS POINT RATE RISES THIS YEAR. ONE WE THINK WILL HAPPEN IN SEPTEMBER. THAT MEANS THE GOLD MARKET WILL HAVE TO RECALIBRATE BECAUSE IT HAS ALREADY DECLINED ON A SERIES OF RATE RISES THAT DO NOT LOOK AS IF THEY WILL MATERIALIZE. SO A COMBINATION OF PERCEIVED SHIFT IN FED POLICY, A RECENTLY WEAKER DOLLAR THIS YEAR, AND SOME WEAKNESS IN EMERGING MARKETS. FRANCINE: JAMES, ISN'T THIS GOING TO BE THE OVER -- THE MOST OVERCROWDED ASSET CLASS ? EVERYONE SAYS BUY GOLD AND EVERYONE WILL PILE IN. JAMES: I WOULD NOT PERSONALLY COMPLAIN ABOUT THAT, BUT IT IS SOMETHING LIKE 6% OR THEREABOUTS OF THE TOTAL FINANCIAL MARKETS, SO IT IS RELATIVELY SMALL. IT CAN BE HISTORICALLY VOLATILE, BUT IT IS A BAROMETER OF NOT

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James Steel Sees Gold as Long-Term Insurance Policy

In today's "Single Best Chart," Bloomberg's Tom Keene displays London gold prices going back to 1950. He speaks with James Steel, chief commodities analyst at HSBC, about what's driving gold markets on "Bloomberg Surveillance." (Source: Bloomberg)

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