Further gold ETF redemptions could push prices to $1,700 - Standard Chartered
Suki Cooper, precious metals analyst at Standard Chartered Bank, said in a report Friday that although gold appears to be oversold at current levels, there is still room for prices to move lower in the near term. She added that the market looks fragile, with little investor conviction to support prices.
The gold market is struggling to find consistent momentum after prices on Friday broke below critical support and fell to a fresh eight-month low. April gold futures remain near their recent lows, last trading at $1,721.10 an ounce, down 0.45% on the day.
Cooper said that investment in gold-backed exchange-traded products (ETPs) is becoming a risk for the market as funds start to reduce their exposure to the precious metal. She added that the next support level to watch comes in at $1,700 an ounce in the current environment.
"Total metal held in trust has fallen to a seven-month low," she said in the report. "ETPs present a source of downside pressure as the resilience of the current metal held in trust is uncertain."
Cooper noted that ETP redemptions have accelerated as U.S. bond yields have surged higher so far this year. While off its recent highs, the yield on 10-year notes is still holding near a one-year high of around 1.45%.
"Our macro strategists note that UST yields have been lifted by expectations of U.S. fiscal stimulus and growing fears of an inflation uptick, thus bringing forward market expectations of the first Fed rate hike. They consider these concerns premature. These same concerns led to rapid unwinding in gold exposure in April 2013. ETPs are key to watch," she said.
Although bearish investor sentiment is weighing on gold prices in the near term, Cooper said that the precious metal's long-term fundamentals remain supportive.
"Easy monetary policy, rising inflation expectations and expectations of sizeable stimulus remain intact and should be supportive of gold's longer-term uptrend," she said.
Cooper also noted improving fundamental support for physical gold demand as Indian gold imports saw their strongest start to the year since 2013. Although physical demand from China remains subdued, Cooper noted that Swiss trade data showed increased gold shipments to the U.S. and a strong start to the year for the U.K. market.
"Given the fragile investment flows, the physical market will set the floor for prices," she said.