UNITED STATES May 10 2017 1:40 PM
NEW YORK (Scrap Register) While diminishing risk sentiment will continue to weigh on gold in the near-term one bank sees a firm floor at $1,200 an ounce as a further drop in price would spur physical demand.
In a research report Joni Teves, precious metals strategist at UBS, said after Emmanuel Macron’s Presidential victory in France, which was the biggest geopolitical risk event that was supporting gold, investors should expect to see some consolidation in the marketplace.
Teves’ comments come as financial markets in general are seeing low risk sentiment in the marketplace. Monday, the Volatility Index dropped below 10, a level not seen since 1993. With no major risk event on the horizon, Teves warned that investors will now focus on global monetary policy, which would be negative for gold.
Gold has struggled to find momentum with prices falling to an eight-week low, with June Comex futures last traded at $1,217.70 an ounce, down 0.77% on the day.
“Further pressure cannot be ruled out for now, but we expect bargain hunting to emerge and physical buying to strengthen should the market test $1200, paving the way for a recovery. The downside should ultimately be limited, additionally helped by already light gold positioning at only 20moz or 54% of the record,” she said in her report.
Looking at the physical demand, Teves said that UBS sees signs of growth in two major markets: India and China, which should lead to a floor in prices.
“In India, March gold imports were the highest since November at 106 tonnes and feedback suggests that recent seasonal demand has been quite strong. China's gold imports for March were similarly strong at a total of 142 tonnes and interest has also been evident of late,” she said.
“Although physical demand volumes are not particularly exceptional versus historical levels, we think that they are considerably stronger relative to market expectations at the beginning of the year and should help sentiment,” she added.