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Gold Price: Is the Worst Over?

November 2015

November 2, 2015 | 10:15 | Dubai

The global physical gold demand in Q3 2015 rose by 7% year-on-year, thanks to an increase in net official sector buying and a stellar level of retail purchases of bars and coins, according to the GFMS Gold Survey: Q3 2015 Review and Outlook published by Thomson Reuters.

Jewellery fabrication, the largest consuming sector, was marginally lower year-on-year, as higher demand in India was offset by a slow recovery in Chinese offtake, although demand in the latter was not as bleak as in the first half. India regained its top position as the largest overall consumer of gold this year through the third quarter. Total consumption amounted to 642 tonnes in the first nine months, with China trailing by 63 tonnes. In India, jewellery consumption increased by 5% year-on-year to an estimated 193 tonnes in Q3 2015, the highest quarterly consumption since Q1 2011 and the highest third quarter demand since 2008. Retail investment rose 30% year-on-year to 55 tonnes, the highest since Q4 2013. Gains in the third quarter were primarily attributed to the fall in the local gold price to the lowest since August 2011. Gross official imports to India in Q3 2015 were 263 tonnes, up by 23% year-on-year and also the highest quarterly volume year-to-date.

In China, after a lacklustre second quarter this year, which was the lowest second quarter recorded since 2011, China’s gold demand rebounded in the third quarter. Total gold demand amounted to 196 tonnes for the period, a modest 3% year-on-year improvement. The improvement in gold demand during the third quarter was driven by several factors. Firstly, now that the extraordinary performance of the domestic stock market has come to an end and many investors have lost faith in the equity market, gold has regained its attractiveness as an alternative investment vehicle. Overall, however, investors have in general remained cautious, as uncertainty around the timing of the first US rate increase has continued to weigh on sentiment, the survey found. “We expect gold to trade back down below $1,100/oz in Q4 2015 which brings an annual average of $1,159/oz in 2015. Gold is set to remain under pressure until there is more clarity on the timing and the scale of US rates normalisation. Among other bearish factors are low inflation expectations and generally weak investor sentiment towards precious metals. That said, gold may draw some support from a seasonal uptick in physical demand towards year-end, and the prospects look brighter for the next year,” said the survey.

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