Gold likely to come under greater selling pressure

Abu Dhabi:

Gold is likely to come under increased selling pressure in the days ahead as strategic investors are unwinding their long positions in the precious metal, according to commodity experts.

“There was a broad-based selling by investors in gold last week, which is exerting downward pressure on prices. Gold is likely to be trading in a broad range of $1,350 -$1,450 a troy ounce this week,” Pradeep Unni, Senior Relationship Manager at Dubai-based commodities trading firm Richcomm Global told Gulf News.

Gold prices ended at $1,386.60 a troy ounce in Friday’s trade.

Unni said even though massive physical buying in gold is happening at the currently prevailing prices, the trade isn’t quite enough to rally the market.

Gerhard Schubert, Head of Commodities - Wealth Management, Emirates NBD, wrote his latest research note that gold is under relentless selling pressure led by disinvestments from ETF (Exchange Traded Funds) holdings.

“The general trading atmosphere is sufficiently negative for gold to enable the sellers to have a firm grip on the market. Physical demand is still on very good levels but the unprecedented massive force of buying has retreated towards a much more orderly but still continuous demand structure,” said Schubert.

He said the Reserve Bank of India (RBI) is currently trying to curb gold imports into India, the commodity’s largest importer in the world.

“The circular concerning the gold loan and gold consignment business was released and they would like to see imports of gold to fall in 2013 to under 700 tons for the year. This is a nice and ambitious target, but we have to see how the final result will look like, later in the year,” Schubert said.

Global bank Barclays said in its research that with much uncertainty in the gold market at present, prices will likely be range-bound as investors grapple with the recent fragility of the market.

“Although ETF holdings have declined by more than 10 per cent since their high reached in 2012, the total amount of gold held in physically backed ETFs is still elevated compared to historical levels. If further redemptions occur, prices could weaken. This is the biggest risk to prices, in our view, and the short-term trajectory of prices is likely to be determined by this investment demand for gold, rather than other sources. On the downside, fundamental cost support is estimated to be around $1300/oz, meaning that if prices were to fall below these levels, a considerable amount of output would be at risk, which could

provide a (loose) floor for prices.”

However, Unni said although the recent fall in gold prices has been triggered by a technical sell-off, the fundamentals of buying gold are as strong as before.

“The US has been unable to bring down its large sovereign debt, there are macro-economic problems in Europe and economic growth concerns in China and Japan. A downgrade of US sovereign debt by credit rating agencies may well see gold recouping all its losses within a week’s time,” he added.