Didn't take long for Barclays to come up loaded with the ammunition of CB's vaults full of gold, don't recall this kind of warnings from the BIG ones when the real bubble was about to burst:
<<<ODJ Barclays Capital Fears Gold's Bubble May Burst, Price Drop
-- Says Safe-Haven Buying "Misleading"
-- U.S. Dollar Weakness Already Factored Into Price
-- Higher Prices Will Choke Off Consumer Demand - Negate Impact Of Producer
Buybacks
By Gavin Maguire
London, May 31 (OsterDowJones) - Barclays Capital argues the recent gold
rally "does not stand up to the rigors of its own data or its own
fundamentals," and that a return "towards $290-300 per ounce could be no more
than a burst away," in a research note released Friday.
"Far from boosting demand for gold, political turbulence in the Indian
region is actually eroding it," it argued.
The scenario of U.S. dollar weakness seems already to have been factored
into prices, Barclays added.
"The key behind the speculative buying of gold was the spark provided by
Newmont's announcements regarding its future intentions for the closure of
Normandy's hedge portfolio during the high profile battle for control of the
company against AngloGold," Barclays said.
"The rationale which lay behind large-scale speculative buying is
weakening and holes in gold's bullish arguments are appearing. Plugging these
holes with (what people conveniently attribute to) "safe haven" buying is just
plain misleading," it added.
The real driver of the gold price has been delivery by producers into
forward contracts (gold that has already been sold) and buybacks of gold
without replacement of new hedge positions, according to Barclays. "Balance
this against massive falls in demand from consumers and the net effect? Near
zero.
"The net change to the gold market's arithmetic? Near zero. The chances of
the gold rally continuing at this pace...?" it asked.
"The current gold price rally is not indicative of a market which has
found its footing. The arithmetic suggests that every extra tonnage of demand
from producers delivering into hedges leads to a corresponding reduction in
demand from consumers," Barclays said.
"Claims that gold is acting as a safe haven for investors who don't know
which way to turn show a lamentable lack of understanding of the gold market
and its issues," it declared.
"With most of gold's gains now behind it, the risks of profit taking and
liquidation should begin to outweigh risks of fresh price increases,
particularly if $340 per ounce is reached," Barclays said.
At this level even producer buying "would likely exit the market and
consumers would be driven even further away from it - and could in fact turn
net sellers as dishoarding is encouraged," it argued.
High prices and a reduction in hedged supply have created a vacuum in
their wake, which is sufficient to "suck in greater levels of selling from
elsewhere such as the 30,000 tons held by central banks," according to
Barclays. "This fact is well-known but is not reflected in the current
producer-driven and speculatively-fueled rally.
"Safe haven? Gold prices are riding on a micro-economic, frothy bubble
which is at risk of bursting. They reflect producer maneuvers, are far from
safe at current levels and we do not believe they represent a sound conduit
for investors here," Barclays said. "When the sums are done the net change in
fundamentals could amount to zero and the return towards $290-300 per ounce
could be no more than a burst away." |
