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Gold proves to be resilient, but has investor sentiment shifted enough?

iconFeb 13, 2014 10:09
Source:SMM
Gold prices have proved resilient in the absence of the Chinese market, and speculative positioning has risen to a 12-week high.

INDIA February 12 2014 10:16 PM

NEW YORK (Scrap Register): Gold prices have proved resilient in the absence of the Chinese market, and speculative positioning has risen to a 12-week high. Despite the patches of improvement, without a more meaningful shift in investor sentiment, prices are likely to struggle to retain their gains, said Barclays Capital in a research note.

According to Barclays, gold prices have traded within a narrow range over the past week and proved resilient in the absence of the Chinese market. Prices have sidelined equity strength and firmer 10y US Treasuries, as well as a weaker dollar.

Local gold prices in India have trended higher since the start of the year but remain below INR 29,000 per 10 grams and, thus, the INR 30,000 per 10 gram mark that had deterred interest in the past. Smuggling of gold remains ripe even as the market has transitioned into seasonally slower period for demand.

Gold prices will likely be driven by macro data in terms of the catalyst to shift prices; however, alongside this price resilience, it bodes well for prices that investor sentiment has shown signs of stabilising.

Notably, speculative positioning in Comex gold has risen for six straight weeks, posting its largest weekly increase since the end of October. Most of the move has been driven by short covering activity, but fresh gross longs have been established and reside at their highest level since October.

Furthermore, physically backed ETPs have recorded select days of inflows, with 17 January recording the largest daily inflow in almost a year, but flows for the full month are still down 29 tonnes. Despite a daily inflow this week, flows for February so far are flat.

Retail interest in terms of coin sales has had a strong start to the year, but the BullionVault Gold Investor Index, which measures the number of private investor buyers compared with sellers, revealed a drop to 51.9, the lowest level since July 2012, but being above 50 indicates the number of buyers outweighs sellers. Overall, there are patches of improvement, but without a more meaningful shift in sentiment, prices are likely to struggle to retain their gains. Outside of investor sentiment, the key factor to watch will be the trade restriction developments in India.

Barclays Capital

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