Barclays: Gold To Come 'Under Significant Pressure' In 2015

Author: Paul Ploumis
06 Jan 2015 Last updated at 04:37:29 GMT
(Kitco News) - Despite continued physical demand in Asia, gold prices are expected to drop in 2015, according to an analyst from Barclays.

In a report published Monday, Suki Cooper, director of precious metals research at Barclays, said the outlook for the yellow metal has become more divided but she still sees more downside risk this year as the U.S. dollar remains strong and oil prices remain weak.

She noted that gold's correlation with oil prices and EUR/USD has strengthened, hitting about 40% in the last three months, "and combined with our view for a U.S. rate hike in mid-2015, gold is set to come under significant pressure."

Looking at 2015, Cooper said, that the bank is expecting gold to average $1,180 an ounce, down from their 2014 average forecast of $1,271 an ounce. Barclays's 2014 estimate was extremely close as gold averaged $1,265 an ounce.

Cooper highlighted that Russian gold reserves could be a risk to the market in 2015. Despite growing speculation, Russia has managed to hold on to its gold but that could change as Barclays expects weaker oil prices to continue to pressure the ruble.

"Russia has been the largest purchaser of gold in recent years, thus Russia has scope to make large gold sales," she said in her report.

Cooper remains neutral on investment demand for gold as speculative positioning "has become more balanced, suggesting the physical market will be pivotal in setting the floor." However, she added gold-backed exchange traded funds could see further redemptions.

"Although outflows slowed, given our macro outlook, we believe holdings are likely to remain under pressure in 2015," she said.

Cooper said that that physical demand, especially out of China and India, remains a bright spot within the marketplace. She noted that imports into India exceeded 600 tonnes in the first eight months of the fiscal year, the highest rate compared to the last three fiscal years.

"China should offer some support to the downside, particularly as demand tends to gather momentum six weeks ahead of the Lunar New Year," she said. "We maintain our view that gold finds a stronger floor if demand is robust across both India and China."

Courtesy: Kitco News