Upside target for gold at $1,450-1,475/oz: Jonathan Barratt

Jonathan Barratt, CEO, BarrattsBulletin.com believes that the recent fall in gold was largely due to a technical sell-off. Looking into the way gold has been trading at the moment, he feels that Asia and particularly Europe is interested in buying it, whereas America is looking to sell it.

He told CNBC-TV18 that the key levels for him on the downside are USD 1,375 and USD 1,330 and on the topside he wants to see it close above that USD 1,450. He also informed that if Brent gets back to USD 102, then he would like to sell it. Below is the verbatim transcript of his interview to CNBC-TV18 Q: Someone was just suggesting that perhaps there has been a little bit of Exchange-Traded Fund (ETF) buying and that has seen a recovery both in gold and crude. Is that something you saw that flows were coming back in a small fashion to both these asset classes? A: Yes, we have seen little bit of buying come back particularly on the gold ETF market. A lot of people are slowly looking at lot more physical demand on gold. That seems to be trickling through to the ETF. On the crude side though we are seeing a pick up of interest, but it is nothing too substantial. If anything there it is just a short market that is looking to grab some profits. Q: What do you think this recent crack in gold pointed to? One point of view is that it was a technical correction with a couple of institutional traders going in and the commodity going belly up, whereas the other point of view that this could be the precursor to a big slowdown in growth and that is the more worrying takeaway? A: It is really interesting. A lot of people have to look at the reasons why the move occurred. What we saw was a gathering of stop loss orders in an illiquid time that pushed the market through some very key levels, which then suggested more selling. When I look at the move, I have to be guided by the fact that the fundamental picture towards gold really has not changed at all and the fact that it was just quite a large technical selloff. I would be guided by where gold is and where it will close by the end of the week. If I can get a close around that USD 1,450 level, maybe a little bit higher, then this is just what we would call a flash crash. Q: What kind of levels are you all watching in the near-term, both on downside and in terms of a potential recovery? A: What I am looking as is the way gold has been trading at the moment. We found that Asia and particularly Europe likes to buy it and America likes to sell it. The key levels for me, particularly the downside now are USD 1,375 and USD 1,330. On the topside I want to see it actually close above that USD 1,450 and maybe USD 1,475. When I look at the physical demand for the market I can see that is certainly outstripping the supply we have. At the end of the day that must filter down to actual demand for the spot price. So, I am looking at all those physical buyers actually helping to support the market. Q: The more gradual correction has actually come through on crude and we are now looking at Brent in double digits. What kind of levels do you expect to see on crude and is it looking like a sustainable correction? A: It is going to be quite interesting. We saw the flash HSBC PMI out of China today and that was not that good. Although was slightly above expectations. That will actually find some support for the market. The market has come a very long way and I would not be surprised to see some shorts actually covering and taking some profit on the market. That is really what we are seeing at the moment, just shorts repositioning, taking profits. I still feel that the global economy is not as strong as people expect. This would be more of a rally to sell into. Actually Brent back to USD 102 would be a target to which I would like to sell. Q: Any anecdotal evidence even that this kind of correction in these commodities has led to any kind of outflow in other asset classes like emerging markets or that it has led to some margin problems that may surface in a couple of days? A: Although those margin problems are certainly there when I look at the price action it seems to me to be relatively orderly. I have noted that there seems to be a couple of larger players in the market. That gives me that level of confidence that it is more to do with short covering rather than anything else. Q: A word on the industrials and whether over there as well you are looking for lower prices either on copper or even a non-industrial metal like steel? A: This will be quite interesting. Copper, aluminium and nickel have been under a lot of pressure. When I look at aluminium and nickel already below or at the cost of production, copper is just a fraction away from it. So, as the market starts to go lower and remember the US housing data, last night was not that good. One could probably anticipate that these base metals can sneak a little bit lower. I do think they are starting to come into value, but I would be very cautious about a buy at the moment expecting lower prices in the not too distant future.