MTECHTIPS;-Further near-term downside expected in Gold: Barclays

MTECHTIPS;-Further near-term downside expected in Gold: Barclays

Investors can expect a further near-term downslide in gold and widening of Gold/Silver ratio portends further weakness in the yellow metal, according to a weekly analysis by Barclays Research. Barclays economists view the recent Fed comments indicating tapering of asset purchases in Q1 2014 to be positive for gold but their asset allocation team remains overweight in developed market equities and expect US dollar strength to emerged into H2 2013. Gold could face downward pressure as outflows from exchange traded funds may continue unabated. "We think that at least 104 tonnes of gold ETP holdings are still cash negative, thereafter, prices are more likely to stabilise," Barclays said. Net ETF redemptions have hit 99 tons in May thus far while latest CFTC data for the week ended May 21 revealed that gross shorts are at record levels at 109.1 K lots up 5.9k lots, more than offsetting the modest build in gross longs (up 2.5k lots). Gold coin sales have calmed since their strong performance in April, as data from the US Mint shows that sales have slowed their pace this month. So far in May, sales have been 52koz, compared with 209.5koz last month. Year-to-date sales are now at 554koz, compared with 753koz in 2012. Gold fundamentals continue to remain bullish with support emerging from lower level buying in China, Shanghai Futures volumes rebounding, but India's Finance Minister has hinted at further controls to curb gold imports. For banks, gold holdings remain unchanged last week and appetite for selling remains muted, Barclays observed. Barclays suggests a bearish technical strategy for gold but sell on rise is recommended for the near term. "Any upticks in gold would provide better levels to sell in the near term, with scope seen toward targets near 1300 and then the 1270 area. Ultimately, it would take a break above the 1800 area to signal that the greater bull trend for gold is resuming and would point to new highs above 1921."

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