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Barclays: Gold Prices May Struggle To Hold Gains; Prefer Palladium

By Kitco News
Wednesday Febrary 12, 2014 2:20 PM

(Kitco News) - Gold prices are higher so far in 2014, but the yellow metal will struggle to hold its gains, said Barclays in a research note.

Palladium remains the firm’s preferred metal and said prices around $700 an ounce represent a buying opportunity.

Short covering, which is buying back of previously sold positions on futures markets, along with strong Chinese physical demand, supported gold prices this year. However, the bank is not impressed: “In our view, despite patches of improvement in investor demand, this alone does not constitute a meaningful shift in market dynamics, and we believe prices are likely to struggle to retain their recent gains.”

Barclays said investor sentiment toward gold is finally stabilifzing, noting the rise in speculative positioning in the Comex market and some inflows into exchange-traded funds. Still, gold prices will depend on macro data to see gains can hold.

The bank said it is also watching trade restrictions in India and how those may change.

“Discussions as to whether India will relax its trade restrictions now signal no decision will be made until after the end of the fiscal year, and perhaps more likely after the elections. Such a move would provide the next cushion of support, in our view,” they said.

Barclays said palladium’s dip to the $700 area is an opportunity as the firm forecasts prices to average $768 in 2014.

“Despite a tumultuous start to the year, we expect gains to be modest and steady, given current elevated stock levels and the lack of a decisive catalyst to drive prices higher,” they said.

A catalyst may be the potential debut of a physically backed palladium ETF in South Africa, which could deepen the expected deficit. The analysts also forecast auto demand from the U.S. and China to provide a “solid backdrop” for the metal.

The bank remains “positive” on platinum, but said the metal will take a back seat to palladium in terms of price gains across the precious metals complex.

Silver has taken advantage of the trading restrictions on gold in India, but it has yet to get any support from industrial demand or greater interest from exchange-traded fund buyers.

By Debbie Carlson dcarlson@kitco.com
Follow me on Twitter at @dcarlsonkitco



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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