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Last Updated : 13 March 2013 at 04:15 IST

Gold buying interest to manifest at $1485/1520 levels: Barclays

LONDON (Commodity Online): Gold markets remain sluggish amidst sharp decline in holdings in Gold Exchange Traded Funds (ETF), wait-and-watch attitude in Indian markets and strong buying appetite in China. Barclays retains a broader bullish outlook but maintains a bearish strategy for the time being. 

Price forecast: Q1 13: $1710/oz, 2013 annual average: $1778/oz

The macro environment remains bullish for gold as Fed may continue with asset buying as labour data does not show a significatn change. European Central Bank may retain interest rates close to zero lveels as policy rates remained unchanged last week. Bank of Japan also left policy unchanged and more stimulatory measures may be announced including increase in targe for asset purchases for this year, according to Barclays, all of which is supportive for gold.

" Gold ETPs have continued to trickle lower and holdings remain vulnerable given prices are trading sub $1600/oz and furthermore should equity markets continue to outperform. Macro uncertainty continues to linger, and gold’s safe haven appeal could return, particularly given the debt ceiling debate scheduled for May, but should investor interest continue to dwindle, physical demand and official sector appetite are likely set the floor for prices," Barclays report added.

Physical market robust in China, appetite softens in India

The physical market continues to respond to the lower prices but has eased modestly. Appetite to buy in China continues to exceed the strong pre-Lunar New Year buying, and the monthly rolling average continues to scale new highs. Bar premiums in Hong Kong remain elevated at $1.50/oz.

- Gold shipments from Hong Kong to China rose 56% y/y to 51.3 tonnes, in part supported by a weak base month given the Lunar new Year fell in January last year, however combined with the elevated trading volumes on the Shanghai Gold Exchange, the data implies continued healthy appetite at the retail level. Shipments followed a fresh record set in December 2012 at 114.3 tonnes.

- However, in India, appetite has softened modestly despite prices remaining below the 30,000INR/10g mark as local consumers look for additional INR strength to lower the price ahead of the festival and wedding-related buying in April.
-Importantly, activity across the official sector remains on the buy side. The Central Bank of South Korea announced that it had bought 20 tonnes of gold in February (Reuters), taking its total gold holdings to 104 tonnes and making up 1.5% of its total reserves, from just 0.2% in mid-2011. The central bank has said that it views gold as a safe-haven asset. Meanwhile, the latest ECB data released this week, revealed net purchases of gold coin (792oz) by one Euro-system bank, appetite to sell remains muted.

Barclays expects buying interest to resume at $1485/1520 levels,  A break above nearby resistance in the 1625 area would encourage our bullish view and signal a move higher in range toward 1700. Ultimately it would take a break above the 1800 area to signal that the greater up-trend has resumed, targeting new highs.

- Resistance: 1588, 1625
-Support 1554, 1522

Gold Trade Remains Constructive

Daily Bars

Chart Prepared by Jamie Saettele, CMT using Marketscope 2.0

Commodity Analysis: Friday’s action following NFP is bullish. After the release, gold took out the previous 5 days’ lows, reversed, and closed near the high of the day and range. The near term action supports the previously presented bullish evidence. “Given sentiment as indicated by COT and the retracement of the rally from the 2/21 low stopping at the high volume day close (2/20 close in futures), a bullish bias is warranted against the 2/21 low. The counter to this is that a drop below 1555 could complete 5 waves down from 1697 and give way to a more persistent advance.”

Commodity Trading Strategy: Long against 1555, target 1650

LEVELS: 1500 1523 1555 1620 1639 1652