Gold to hover near $1200-1250; downside risk seen: Barclays

Global gold prices are likely to remain rangebound going ahead with risks skewed on the downside, Suki Cooper, precious metals analyst, Barclays Capital said. In an interview to CNBC-TV18, those playing the yellow metal should keep an eye on the USD 1200/oz level. She further added that if gold prices breach this level then it would add lot of pressure on to it because below USD 1,2000 exchange-traded products and cost become loss making.

Gold prices have remained weak globally due to absence of physical demand for the yellow metal across China and India, providing very little support during a period when there is seasonally strong demand and consumption, she said.

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Below is the edited transcript of Suki Cooper’s interview with CNBC-TV18

Q: Gold has been trending lower throughout this year. How do you think it moves in the remaining three weeks of this year? What is the near-term trend? Does it break USD 1,200?

A: Towards the end of this year, there are two key factors that are going to be at play. Firstly, how much support do the physical markets lend and the second factor is going to be investment demand, whether we continue to see outflows across physically backed exchange-traded funds (ETF). Our view is that prices are likely to trade within the range that we have seen over the last couple of months, but risks are set to be skewed to the downside.

If prices do breach that USD 1,200 mark then that would be a vulnerable level for gold because additional exchange-traded products become loss making and the path of the cost curve becomes loss making. There is a great deal of pressure if prices breach USD 1,200/ounce. We are looking for prices to trade within the range that we have seen with the risk skewed to the downside.

Q: What explains this weakness in gold?

A: Currently, we have seen lack of physical demand across China and India providing very little support during a period when we tend to see seasonally strong demand and consumption. At the moment, we have got a combination of weak consumption and investment continuing to remain weak. If we are looking at the factors that have supported gold over the last three-four years, it has been growth in investment demand across exchange-traded products, Futures, coins and bars. This year we have already seen outflows of 800 tonne across ETFs.

That has placed a great deal of pressure on the downside for gold prices, but it has also brought in a lot excess supply for the market. Even though prices have stabilized somewhat compared to where we were at the start of the year, ETF outflows haven't stabilized.

We saw outflow of 40 tonne last month which was very similar to outflows in October. So far in December outflows have already reached 10 tonne and that disinvestment has not slowed down in growth. A lot of that is connected to the confidence in terms of the macro data we are seeing out of the US. The delay in tapering should have offered some support, but the market is still anticipating that asset purchases will be scaled back in the US.