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Gold Could Become an “Unattractive Asset” - ABN Amro Analyst

By Kitco News
Thursday July 25, 2013 1:00 PM

(Kitco News) - An analyst at ABN Amro expects gold prices will remain under pressure despite the recent uptick in prices.

On Wednesday, Comex August gold futures opened at a one-month high of $1,348.70. However despite the momentum of the past month, analysts at ABN Amro are expecting to see more selling pressure in the near-term. As of 12:51 EDT August gold was trading at $1,328.9, up $9.40 or 0.72% on the day.

“As long as gold prices remain under USD 1,525/ounce, the technical outlook remains negative; and investor have the tendency to sell on rallies,” said Georgette Boele, analyst at the bank in a research note released Thursday.

Boele’s note was an update to her forecast first published on June 26. In that report she lowered her year-end forecast to $1,100 and her 2014 year-end forecast to $900 from $1,000.

According to Boele, a number of factors will continue to drag down gold prices in the near and long-term including continued investor liquidations in gold holding and exchange-traded products. She added that expectations continue to build that the Fed will start to restrict its monetary stimulus as the economy continues to improve in 2013 and 2014.

Although positive investor sentiment from the improving economy will help commodities in general, gold is expected to underperform.

“[Gold] is not leveraged to the global cycle, it does not earn income and the potential for capital gains appears dim,” she said. “Gold prices have a tendency to strongly underperform in an environment that the US economy is strong, inflation is relatively low and the market starts to anticipate higher Fed rates at a moderate pace.”

Weak demand in India, as the government and the central bank continue to target gold to reduce the country’s inflated current account deficit, is another factor that will drag prices lower.

Since May the Reserve bank of India and the Indian government have aggressively restricted gold imports and even raised the duty to 8% from 6%. On July 22 the central bank added to its restrictions and made it mandatory that importers must set aside 20% of its gold for re-exports as jewelry. The restrictions appear to be working as imports of gold and silver fell to $2.45 billion in June, significantly lower than May’s imports worth $8.39 million.

The Dutch Bank also expects a strong U.S. dollar and more hedging from mining companies to impact gold prices moving forward.

Silver to Recover Faster than Gold

Although Boele is not bullish on silver for 2013, looking ahead, she sees prices recovering in 2014.

She added that near-term prices could suffer from investor liquidation.

“As is the case for gold, investors should ask themselves why they want to hold silver. It does not pay income (dividend or coupon), the recent volatility is viewed as undesirable, capital gain appears to be limited and it does not have a safe-haven status, such as gold holds for doom-and-gloom investors,” she said.

Boele said silver’s saving grace will be its industrial uses. She added that industrial demand for silver is strongest in the U.S. and China.

ABN Amro expects silver to end the year around $16 an ounce but going forward Boele forecasts the metal to end 2014 at $18 and reach $23 by the end of 2015.

By Neils Christensen of Kitco News nchristensen@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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