Mike Norman, anchor, HardAssetsInvestor.com (Norman): Hey, welcome back to the second half of my interview with Miguel Perez-Santalla, vice president of sales for Heraeus Precious Metals Management. Miguel, you hear people say, well, the price is determined by supply and demand, yes. But isn't there another element of demand besides the physical demand that industry needs? We're talking about investment demand now.

You mentioned in last week's interview that jewelry demand, when we were speaking about gold, has kind of gone flat because the price has gone up so much. However, investment demand is still growing. How much of a factor … I know it's much less than industrial demand but it's growing … and it's an important factor, right?

Miguel Perez-Santalla, vice president of sales, Heraeus Precious Metals Management (Perez-Santalla): Those factors have also been part of what's helped the metals grow in price so much. What happened early on in 2006 and 2007 is the exchange-traded funds came out, enabling smaller investors to buy physical metal without having to hold it - in essence, a way to hold the metal in paper form. That was a huge chunk of metal that was taken off the market, so that affected the supply-and-demand factor, and that is taken into account. Then later on came the platinum group metals - platinum and palladium - they also created ETFs, and that also drove the metal higher. So these are fundamental causes that did drive the metals higher, and the investor demand has been there.

But as of late, we have seen investor demand start to liquidate, I think, because over the last few weeks we keep bumping our heads on the ceiling and [investors are saying], jeez, there doesn't seem to be any more upside potential here. And with the consumers - which is the industry - not buying and consuming, there's nowhere else for the price to go, and that's why at this time I remain bearish overall for the metals in the short term, and I expect to see gold, for instance, come down into the low-800s.

Norman: Really? Let's characterize the different sort of players in here, because we have the speculators who can go long and short, maybe exerting a short-term influence on prices, but then we have these big institutions like pension funds and endowments; they are long-only passive investors. They're not the ones who are liquidating now, are they? Because they've decided they want a 3% or a 5% allocation, they put it on, they're going to hold it.

Perez-Santalla: No, you're absolutely right. The ones who are liquidating are the investment funds that are trading in and out of the market. Usually they're trading to show their quarterly gains, and as of this time, I think that they're liquidating because they're starting to have confidence back in the U.S. stock market, in the bonds, and they're looking at paper again and starting to go in there. As you've seen in the last couple days, we've seen some really positive movement in those markets.

Norman: In the past, every time there's been a spike in commodity prices, you've seen technological advancements which led to a greater degree of productivity and efficiency, so we actually use less [of the underlying commodities themselves]. Will this price-spike trigger the same sort of technological advancement?

Perez-Santalla: Actually, it definitely has triggered that. In our industry, that's called thrifting, when, let's say, they used an ounce of platinum to make something, and now they try to figure out what's the least amount they can use. So thrifting has also been a factor which has reduced the consumption of platinum, and that's why we've seen weakness in the platinum market.

And I'll tell you another thing: Mines are not too thrilled to see platinum way too high because they have the fear that someone will replace the metal eventually with something else if the science ever gets there. So for instance, back when platinum was at $800 an ounce, I had two researchers doing it; now at $2,000 an ounce, I'd have 10 looking for a replacement, because there's got to be a cheaper way. There have been reports recently of replacement of platinum in certain catalysts, not in great amounts; like, for instance, it was Mitsui Mining who is replacing platinum catalysts with silver in heavy machinery, because there it doesn't matter the size. Nisshinbo Manufacturing has found a way to replace platinum catalysts in fuel cell technology, and they're going to replace it with carbon. They are little things, but little by little, they bite at that supply-and-demand factor, so that affects it.

Norman: Like they said, the Stone Age didn't end because we ran out of stone: We found other things to do. All right, there you have it folks: a perspective on the precious metals markets, by certainly an expert. Thank you very much for coming here. Stay tuned to this Web site because we've got a lot of great interviews like that on a regular basis. I'm Mike Norman, signing off for now. We'll see you next time. Take care.