Gold strength will be short lived, Barclays says

Gold's recent strength will be short lived, with prices likely to be dragged down by sluggish physical demand and weak fundamentals, Barclays said in a report.

The yellow metal edged up US$4.50 to US$1,309.75/oz in London on Friday on safe-haven buying after the US announced air strikes in Iraq against Sunni militants who have seized control of parts of the country.

Safe-haven buying has helped boost gold in recent weeks as political tensions have emerged in the Middle East and Ukraine, with the metal averaging US$1,310.97 in July, up from US$1,279.09/oz the previous month.

But gold's rise has been dampened by signs of strong economic growth in the US, leading to fears the Federal Reserve may tighten monetary policy earlier than expected.

Coupled with this, physical demand has been relatively weak in China and India, while investment demand has remained inconsistent, leading to signs of lower prices to come.

"Short-term investor interest has picked up in gold, but the weakness in physical demand means the metal is torn between rising geopolitical tensions and the lack of a solid fundamental floor," Barclays said in a report. "In our view, gold's recent uptick is likely to be short lived, given that broad investor interest has failed to follow through and physical demand is showing little sign of recovering significantly in the near term."

Silver closed up six cents at US$20.13/oz.