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Continued ETP outflows remain a key downside risk to prices in the near term and are on track to mark a fresh record high, surpassing the weakness in February.

27 Apr 2013

Commodity Online
Barclays expect gold prices to recover to an average $1,500/oz in Q4 13 but given the weight of cash negative ETP holdings, they believe downside risk still exists in the near term, and expects prices to average $1350/oz.

The key question here will be whether physical demand can continue to offset ETP outflows, which have shown no sign of slowing down. Gold ETP outflows have continued, hitting 150 tonsso far in April, bringing year-to-date outflows to 310 tonnes. This compares to net inflows of 279 tons in 2012, and outflows represent 11% of the peak holdings at the start of the year of 2767 tons.

Continued ETP outflows remain a key downside risk to prices in the near term and are on track to mark a fresh record high, surpassing the weakness in February. However, coin sales have shown signs of invigorated retail interest. Having hit their highest since December 2009, gold coin sales from the US Mint have hit 196.5koz so far in April, even as the US Mint has temporarily halted 1/10oz gold coin sales due to a lack of inventory and strong demand.

After hitting their lowest level since February 2011 last week, gold prices have since recovered to above $1400/oz. While continued ETP outflows have put pressure on prices, physical demand from China and India has remained strong since the price decline. Volume traded on the Shanghai Gold Exchange remains elevated, with both the daily and monthly averages hitting alltime highs this week.

Furthermore, bar premiums in Asia remained high this week, as the premiums in both Hong Kong and Singapore have hit $3.00/oz, the highest since January 2011 for Hong Kong and the highest on record for Singapore. In Tokyo, bars remain at a premium, but that premium has eased to 63cents/oz this week. Indian demand has remained strong in response to the lower price environment as well because while the local price of gold in India has risen, it has hovered around 18-month lows, currently at around INR27,000 per 10g. Local dealers in India have said it is difficult to source metal for immediate delivery with premiums as high as $10/oz and that supply could return to normal in 20 days (REUTERS).

According to an Istanbul Bourse Official, Turkish gold imports hit 18.5 tons so far in April, the highest since July 2012. In production news, Barrick and Newmont provided Q1 13 gold production results. Barrick and Newmont both experienced falling production on a m/m and y/y basis, with production at Barrick’s operations falling by 11% q/q and 4% y/y to 1.798Moz and Newmont’s production falling by 7% q/q and 12% y/y to 1.165Moz.

While Barrick said it would continue to focus on reducing cash costs, which stood nearly unchanged q/q at $797/oz, Newmont’s production fell due to lower mill availability, which should be rectified this year. Both Barrick and Newmont maintained previous production guidance at 7-7.4Moz and 4.8-5.1Moz, respectively.

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