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What are the risks to face Gold if prices below $1,200 an ounce?

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NEW YORK (Scrap Register): Gold would face two risks if prices should drop below $1,200 an ounce – the response by the physical market and the fact that nearly 350 tonnes of exchange-traded-product holdings will be loss making, said Standard Chartered.

The latter would put excess pressure on prices should those holdings be redeemed. Newcomers to ETP investments have not appeared willing to maintain their exposure for prolonged periods and thus may be more speculative, Standard explained.

Meanwhile, there is a risk that physical demand may not pick up quickly despite lower prices since jewelers in the key buying nation of India already restocked ahead of an increase in the goods and services tax that went into effect this month, the bank added.

Thus, it will take strong consumer demand to work though the excess inventory already built up. This risk could linger in July and August, before seasonal buying gains real momentum in September (the largest gold-buying festival, Diwali, falls in October this year),” Standard Chartered noted.

Therefore if macro headwinds persist, the market could face a fragile floor for longer than three weeks.

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