Gold may extend a rally from a two-month high as an increase in demand from jewelry buyers in China and India helps counter a drop in assets under exchange-traded funds backed by bullion.
Prices may rally to as much as US$1,550 an ounce by the end of the year, said Jeffrey Rhodes, managing director of the financial institutions division of the Kaloti Jewellery Group, a Dubai-based gold trader and refiner. There are no signs of demand abating from India and China, which account for about 60 percent of global gold consumption, he said at the India Gold Convention in Jaipur on Saturday.
A rally may help trim gold’s first loss in 13 years after some investors lost faith in the metal as a store of value amid expectations that the US economy was recovering. The metal has rebounded 17 percent since reaching a 34-month low of US$1,180.50 an ounce on June 28 as demand for jewelry, bars and coins soared from India to China and Turkey. The surge in physical demand may help counter a selloff in bullion-backed exchange-traded funds by investors, including billionaire John Paulson.
“Underlying strength in physical demand will underpin gold prices and there have been signs of Western investors coming back to gold,” Rhodes said. “The economies are doing much better but we are still in a world of negative real interest rates, so till then gold will flourish. There is much more upside potential than downside.”
Consumer demand in India, the biggest buyer, jumped 71 percent in the second quarter and in China, the second-largest, it gained 87 percent, helping to push global bar and coin purchases to a record and jewelry usage to the most since 2008, the producer-funded World Gold Council said on Thursday.
The metal rallied to US$1,376.87 an ounce in London on Friday, the highest price since June 17, paring losses to 18 percent this year.
Prices could rally to US$1,430 by the year end because of physical demand from China, India and the Middle East, Cameron Alexander, an analyst at Thomson Reuters GFMS Ltd, said in an interview. Bullion may climb to as high as US$1,475 in the first quarter of next year before declining because of improving economies worldwide, he said.
Holdings in gold exchange-traded products are down 26 percent this year, wiping US$55.5 billion from the value of the assets.
Paulson, the biggest investor in the SPDR Gold Trust, the largest gold ETP, cut his stake by 53 percent in the second quarter, a government filing on Wednesday showed.
Silver may rally to US$30 an ounce by the end of this year, Rhodes said. The metal rallied 13 percent last week to US$23.2575, the most since September 2008, as holdings in exchange-traded products backed by silver reached an all-time high.
Gold imports by India may tumble to about 150 tonnes in the six months through to December from 478 tonnes a year earlier because of an increase in taxes and central bank curbs, Prithviraj Kothari, a Bombay Bullion Association director, told the Jaipur conference.
A surge in shipments in the second quarter prompted the government to increase a tax on imports for a third time this year to 10 percent to contain a record current-account deficit that has weakened the rupee to an all-time low. Higher tariffs and central-bank rules linking overseas purchases to re-exports have fueled premiums in the domestic market to a record.
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