Quantcast
Other Stories

It was the broader implications of the Cyprus situation that triggered the initial safe-haven interest in gold; once again, it is the concern that other central banks could be asked to dispose of their gold to deal wi..

20 Apr 2013

LONDON (Commodity Online): Gold prices are expected to average $1483/oz in 2013 and $1450/oz in 2014. The commodity needs to find support from the physical market in the near term, stated London based Barclays in its recent market analysis.

After hitting its all-time high in September 2011, gold has had three failed attempts at the $1800/oz level, with the last one being after QE3 was announced in September 2012.

Gold quickly surrendered its gains rather than extending into uncharted territory and, subsequently, investor fatigue set in. The market started to focus on scope for quantitative easing to be pulled earlier than expected.

Prices closed in on $1700/oz in January this year and caught a short-lived safe-haven bid as the Cyprus crisis unravelled. Aside from this, gold has been struggling to source a catalyst to drive prices higher.

Gold has mostly sidelined gold-positive news such as the Bank of Japan announcing a larger-than-expected monetary stimulus, and has instead reacted to negative market factors, which is indicative of the strong bearish sentiment towards gold.

Hawkish Fed minutes and news that Cyprus may sell its excess gold reserves to help meet some of its bailout costs triggered the initial sell-off in prices.

It was the broader implications of the Cyprus situation that triggered the initial safe-haven interest in gold; once again, it is the concern that other central banks could be asked to dispose of their gold to deal with financing needs that has pressured prices lower.

Mass exiting across longer-term and short-term investors resulted in gold losing 5% in a single session, and then suffering their largest daily absolute decline to plummet to below $1350/oz on Monday 15 April, a level not seen since February 2011.

However, Barclays doesn't believe market dynamics have switched to the low gold price environment of the 1990s, in which,

--Gross shorts scaled record highs

--Central banks were net sellers, and

producer hedging dominated amid prices testing the cost of production. Prices are currently closing in on the marginal cost of production plus sustaining capex, but hedging activity predominantly relates to project-related financing.

Gross shorts are elevated, but central banks remain on the buy side and, despite the Cyprus news, Barclays expect official sector activity to remain on the demand side.

To replace the net supply from the official sector that reigned in the 1990s, Barclays sees scope for continued hefty ETP selling instead.

The broader macro backdrop remains gold-supportive given the continued global balance sheet expansion, real interest rates remaining negative and the longer-term threat of inflation.


YOUR RESPONSE
Click on the image to reload it
Click to reload image
COMMENTS (0)

@2013 COMMODITYONLINE ALL RIGHTS RESERVED