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Gold to average $1875 in Q4; move till $1300 acceptable

Gold price is expected to average $1875/oz in Q4, 2011 as the physical gold demand continues to cushion prices before investment demand takes off. Even though the volumes have softened, gold bar premiums in Asia is pretty high, indicating the strong demand for physical gold.

-The G-20 nations asked Europe to formulate a plan to resolve the debt crisis within October 23. And this looks unlikely since many key issues are yet to be fully defined.

-Spain’s credit rating was downgraded by the S&P

-China is slowing as shown by the Q3 GDP decline. Chinese GDP fell to 9.1%, the slowest since 2009.

-Long term interest in gold is resilient as shown by the Gold ETP holdings. Net outflows for the month to date stand at just 3 tonnes against total holdings of 2179 tonnes.

-Gross longs in COMEX gold is at its lowest since 2009 while non-commercial popstions as a percentage of open interest is just 31%

-Gold bar premiums in Asia is at multi-month highs. In Dubai, Gold demand is shifting from jewellery to investment.

-Gold output from South Africa is down 19.7% in August YoY due to safety stoppages and wage negotiations. This indicates lower supplies into the market.

-The Freeport McMoRan strike continues. The strike started on September 15 and was expected to be in effect till October 15. However, with the management and workers unable to find any common ground, an extended strike is underway.

Technical Outlook

The gold VIX has decline indicating the possibility of a range-bound market. Selling pressure is expected at $1700/$1730 levels. Even if prices fall to $1300, the long-term bullishness will remain. Prices need to cross above $1800/$1850 for a bull trend.

Support at $1650/$1625 while Resistance at $1730/1705

Source: Barclays Capital Commodities Research

Posted by on October 23, 2011. Filed under Precious metals. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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