Can Asian Physical Demand Support Gold Prices in 2018?



China’s safe-haven buying

China’s gold consumption has picked up in 2017 after being lukewarm in 2016. In the first nine months of the year, China’s gold consumption reached 815.9 tons, an increase of 15.5% year-over-year. Strong consumption of gold bars led to this impressive growth. The consumption of gold bars rose 44.5% to 222.1 tons. The consumption of gold jewelry, on the other hand, rose 7.4% to 503.9 tons. China’s Gold Association attributed this growth to the increasing consumption from China’s second and third-tier cities. It also believes that China’s cooling property market and volatile equities market also led to more demand for gold.

India’s gold demand

Gold demand in India after demonetization was announced by India’s government in November 2016 has taken a hit. According to All India Gem & Jewellery Trade Federation, business in the sector after demonetization was down 75%. Gradually, the demand has picked up, but it still continues to be 25% less than last year. Demonetization has also led to a growth in the organized jewelry market. This year, even the festive demand in India was not very strong. During this year’s Diwali celebrations, a time when gold demand tends to be strong, India’s gold demand was 15% lower than last Diwali. One of the reasons was higher gold prices during the period. Indian consumers are price conscious and increase their demand when prices are low, and vice versa.

The introduction of the goods and services tax (or GST) also impacted the gold demand in India negatively. Gold purchases by the world’s two largest consumers usually support gold prices (GLD) and gold stocks such as Goldcorp (GG), Eldorado Gold (EGO), Hecla Mining (HL), and Franco Nevada (FNV).

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