Despite a surge in gold prices last year, physical demand for gold fell precipitously, noted James O’Rourke, Commodities Economist, at Capital Economics. They think that a brighter economic outlook will boost consumer demand this year and help to prop up the gold price.
Key Quotes:
“We anticipate a strong economic recovery in India this year, which will support physical gold demand. Indeed, India’s Finance Ministry has finally announced significant fiscal stimulus, which will bolster demand.”
“We expect demand to return to more normal levels in China, the world’s largest consumer of physical gold. Indeed, the premium in the local gold price (see Chart 4) suggests that demand is already recovering as the Lunar New Year holiday, typically a period of strong physical gold demand, approaches. This strength comes despite a subdued start to the festive season.”
“We reckon that a revival in jewellery consumption in key consumers India and China will put a floor under the gold price this year, even as investment demand for gold eases back slightly.”
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