Monday, October 13th 12:33 PM IST

Gold trades above $1200 on return of physical demand in India, China

# gold  # US dollar  # interest rates  # physical buying  # festivals  

In a weekly update, Barclays said that the bounce could be shortlived amidst not so favourable macro environment. On the other hand festival and wedding season in India could present short covering rallies and therefore an uptrend in gold.

NEW YORK (Bullion Street): Gold has bounced back and trading above $1200 due to return of physical gold demand in India and China, according to Barclays.

In a weekly update, Barclays said that the bounce could be shortlived amidst not so favourable macro environment. On the other hand festival and wedding season in India could present short covering rallies and therefore an uptrend in gold.

Dollar strength continues to impact commodities and an earlier than expected rate hike would serve to further bearish momentum in the gold market , Barclays observed.Forex trends are neutral for gold and "We believe that lower energy prices and a stronger USD are unlikely to change the trajectory of Fed policy meaningfully and an eventual shift in the market perception is likely to be an additional boost for the US dollar, Barclays observed.
Gold ETP holdings have continued to dwindle in October with outflows reaching 15 tonnes, taking net redemptions for the year-to-date to 104.5 tonnes. Given the increasingly bearish macro environment, we would expect ETP holders to remain net suppliers of gold in the near term. 

Physical demand has materialised at lower price levels. The Chinese market returned last Wednesday, and buying was healthy but not aggressive. The rolling monthly average gold volume traded on the Shanghai Gold Exchange rose to its highest level since May 2013 and has been firming since price elasticity increased in August. On a daily basis, volume traded is at about half the level seen during the sharp pick up in demand in response to the price decline in April last year. 

Barclays noted that in line with their expectations, "buying in India has started to improve m/m as we head towards the key festivals, prompting gold buying before the wedding season, but volumes have not been exceptional. Local traders are still hoping for a pick up in buying in the two weeks leading up to the festival of Diwali, but demand for alternative gifts such as electronics has been competitive. Furthermore, many of the purchases that have taken place are in exchange for old jewellery rather than an incremental consumption. Elsewhere, physical bar premiums have eased in Singapore by 15 cents and moved parity in Tokyo but have risen by 5 cents in Hong Kong."

Near-term profit taking has helped lift gold from ahead of important support in the 1180 area. We expect the recovery to extend towards resistance in the 1240 area, near the former range lows.  From there, we would look for signs of a top to help keep our overall view bearish.  Below 1180 would confirm resumption of the down-move towards initial targets near 1155 and then the range lows at 1043. -Support: 1202, 1180; Resistance: 1242, 1277

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