Monday, October 21st 04:58 PM IST

Gold caught in middle of 1170-1440 range, strategy neutral: Barclays

# gold  # precious metals  # Shanghai  # physical gold  

Gold ETF holdings have continued to decline to May 2010 lows and physcial demand is weak in India.In China, volume traded on the Shanghai gold exchange fell for most of last week, until Friday when volume traded picked up after a deal was reached in the US over the debt ceiling and US government shutdown.

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LONDON (Bullion Street): Gold remains caught in the middle of $1170-1440 range, a short term boost to prices due to short covering rally and expectations of delayed Fed tapering may not be sustained. Gold is running out of ammunition and could continue to struggle unless physical demand shows signs of considerable improvement and investor sentiment turns favourable, according to Barclays Research.

Price forecasts: Q4 2013:$1325/oz, 2013: $1425/oz 

Macro environment including the US debt crisis, Italy's measures to improve economic competitiveness and Fed policy that will be influenced by the outlook on labour market and US employment report for September --all could prove to be bullish for gold.

Impact of forex market on gold would be neutral with -1 month targets: EUR/USD 1.35, USD/JPY 98, USD/CHF 0.92. 

-An eventual resolution to the US fiscal deadlock prompted USD weakness across the board last week, with both higher and lower yielding currencies rallying. The former can partly be explained by the boost to risk appetite since a crisis situation was averted but the latter suggests investors are also beginning to shift expectations for Fed asset purchase tapering beyond this year, and ultimately a later tightening cycle.

Since the Fed remains in data-dependent mode, price action suggests investors are expecting the potential hit to growth from the government shutdown (which we view as relatively minor) plus the stalling of new data for the past 3 weeks as a sign that the Fed will need to keep policy loose until greater clarity is offered. 
"We still think December remains the most likely timing for the Fed’s taper decision, given our forecasts for stronger job creation in Q4, but expectations elsewhere have clearly shifted."

Gold ETF holdings have continued to decline to May 2010 lows and physcial demand is weak in India.In China, volume traded on the Shanghai gold exchange fell for most of last week, until Friday when volume traded picked up after a deal was reached in the US over the debt ceiling and US government shutdown.


It appears that Chinese buyers have not necessarily bought on lower prices, and the post debt-deal buying represents a shift in the price responsiveness we have seen since April’s fall in gold prices. Watching these data is key to determining whether Chinese buyers have reverted to last year’s trend of buying during rallies, versus this year’s trend of buying on price dips. Bar premiums across Asia have remained the same according to the latest data, at $1.50/oz in Hong Kong and Singapore, and 75 cents/oz in Tokyo

-That said, the end of the US government shutdown means we will receive the September employment report on Tuesday and we expect a strong print. We forecast NFP to increase by 200k (consensus: 180k) and the unemployment rate to decline to 7.2% (last and consensus: 7.3%).

Results in line with our forecast would likely lead to a broad USD rally, as expectations for a delay in tapering are pared.   Technical strategy: Neutral -Gold is caught in the middle of a 1170 to 1440 range. Within the range, given the broader signs of USD weakness emerging, price is likely to stay buoyant for a return to 1345/50. The bias marginal however as the medium-term view remains neutral. -Resistance: 1345, 1375, Support 1287, 1250. 

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