The lack of physical uptake for gold bullion could leave the price vulnerable to corrections was the view of UBS Friday, as investors lack any gauge on fundamentals.
The world's number one and two consumers, China and India, have been largely absent from the market in 2016. More so India, which has shied away from the higher price in both dollar and rupee terms and also been hit by industrial action owing to proposed increased taxation.
"In addition to physical buyers not being there to help absorb supply, it also means investors don't have the natural gauge to assess whether a floor is nearby," analyst at the Swiss bank Joni Teves told clients Friday.
This was backed by a senior bullion banker this week who said that he sees zero physical demand from key buyers.
He said that the price could easily correct back towards $1,150/troy oz and didn't rule out a pullback towards $1,050/tr oz.
"I don't think $1,050 is impossible in the short term. There is not much going for it [gold] these days," he said.
S&P Global Platts Gold Premium India 995 was assessed Friday at $9/tr oz from $12/tr oz Thursday.
The London Bullion Market Association Gold Price, administrated by ICB, settled Friday morning at $1,221.25/tr oz, down from $1,256.50/tr oz a week ago and $1,280.25/tr oz three weeks ago.
"A large enough drop could potentially attract some interest from physical buyers, but there won't be the same kind of urgency as during key seasonal periods," Teves said.
One contact on the ground said that any dip would need to be closer to $1,100/tr oz to get India interested.
The summer is traditionally a slow period for physical gold purchases.
Commerzbank said that the strong rise in gold prices -- to a 15-month high in the first quarter of around $1,300/tr oz -- has been driven by investment demand, confirming Platts reports this week.
"Gold Exchange Traded Funds recorded their strongest inflows for seven years in the first quarter. By contrast, there has only been moderate physical gold demand in India and China in recent months," the German bank said.
It maintained an average 2016 price forecast of $1,250/tr oz.
