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Could Physical Demand Come to Gold’s Rescue in H2 2018?

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Aug. 13 2018, Updated 7:30 a.m. ET

Indian gold demand

The demand for gold in India (INDA) fell 7.0% in the second quarter, mainly due to stronger equity markets and higher gold prices measured in rupees. According to the World Gold Council (or WGC), overall gold demand in India in the second quarter reached 187.2 tons, compared to 202.6 tons in the same period last year. 

The decline during the first half was 6.0%. The rupee has depreciated by ~7.0% year-to-date against the US dollar (USDU). This event caused local gold prices to rise, even with the price decline measured in US dollars.

However, the second half is expected to be better for physical gold demand in India. Usually, this demand picks up in India from September onward as the harvest and wedding seasons provide support.

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Demand from China and Iran is strong

While currency depreciation stemmed the demand for gold in India, the demand for gold thrived in China (FXI) and Iran on these same concerns. According to the WGC, Iran’s gold bar and coin sales tripled in the second quarter to 15.2 tons, the highest in four years. As the US (SPY)(IVV) imposed sanctions on the country, its currency slumped and investors found refuge in gold. 

After the US-China trade concerns escalated, the yuan has weakened considerably. This trend prompted the flight to safety among Chinese consumers, benefiting gold.

WGC optimistic for H2 2018

The World Gold Council believes that there are reasons to be optimistic about the demand for physical gold (GLD) picking up in the second half of the year. According to the WGC, uneven economic growth, rising inflation (TIP), trade war impacts, and an inverted yield curve (BND) could support gold prices in the second half of the year.

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