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A Look at Physical Gold Demand in H2 2018

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Physical gold demand

Physical gold demand, especially from India and China, traditionally supports gold prices (GLD) when prices are weakening. Gold consumers in these markets are price conscious and usually load up on gold when prices are falling.

Can India’s demand pick up in H2 2018?

So far, the demand for gold in India (INDA) is tepid at best. In the first five months of the year, India’s gold imports fell 39.4% YoY (year-over-year), according to research firm GFMS. One of the factors for weaker gold demand in India is the depreciation of the Indian rupee in 2018, which is down ~5.0% YTD (year-to-date).

Gold is trading at a discount to the world market. While demand is expected to remain tepid in June and July, August could see a pickup if the monsoon season delivers good rainfall. India’s rural population, which comprises two-thirds of the total gold demand in the country, still depends on agriculture and good monsoon rainfall boost their income levels. Despite banking facilities now being available in most of the villages, the rural populations still prefer gold as a store of wealth.

Gold demand in China

The World Gold Council (or WGC) believes that China’s (FXI) jewelry demand should see an upturn. It estimates that China’s demand for gold jewelry shrank by one-third between 2013 and 2016. It believes that the reinvention seen by jewelers, improved designs, and improved customer experiences could support higher demand going forward.

These factors are usually bullish for gold’s investment appeal. If gold prices are expected to rise, gold equities could outshine gold due to their leverage to gold prices. Gold miners such as AngloGold Ashanti (AU), Iamgold (IAG), and Coeur Mining (CDE) provide leveraged exposure to gold prices.

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