Wednesday, May 22nd 11:33 AM IST

Barclays sees Gold recovery on fabrication demand

# Barclays  # gold forecast  # Gold ETP  

Weakening investor sentiment towards gold has caused many market participants to question the sustainability of the bull-run.

LONDON(BullionStreet): Barclays said it expects recovery on gold as fabrication demand such as jewellery, industrial and dental demand particularly from India and China will likely pick up.

Barclays revealed “Compass”, the Wealth and Investment Management monthly research dedicated to providing investment advice and recommendation to investors across the globe.

Furthermore, we do not envisage any change in centralbank buying activity (which accounts for approximately 10% of total demand). While there could be some sales, we are of the view that central banks will likely remain net buyers, overall, this year.

But with much uncertainty in the gold market at present, prices will likely be rangebound as investors grapple with the recent fragility of the market. Although ETF holdings have declined by more than 10% since their high reached in 2012, the total amount of gold held in physically backed ETFs is still elevated compared to historical levels (in fact, it represents the sixth-largest holding in the world, just behind France's official holdings).

If further redemption’s 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 The report advises investors that on a medium and longer term, Barclays continues to prefer corporate to government securities, and stocks to most bonds.

With most bonds continuing to trade above their par values, and at levels that leave them very sensitive to changes in interest rate expectations, Barclays strongly favours stocks over bonds.

Weakening investor sentiment towards gold has caused many market participants to question the sustainability of the bull-run.

As gold is becoming more accessible to the wider market, traditional demand dynamics are changing. Precious metals do help diversify portfolios, but they are not a foolproof hedge against anything, and the monetary claims made recently in respect of gold have been overstated.

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, the report added.

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