LAUNCESTON, Australia, Feb 16 (Reuters) – The price of gold appears caught in a holding pattern, stuck between what is actually happening to demand and what potentially may happen.
The World Gold Council’s latest quarterly report provides a snapshot of the different dynamics at work in the gold market, and goes some way to explain why the precious metal has been marooned in a fairly narrow range for almost two years. The broad picture from the council’s Gold Demand Trends 2014 report is that last year was the weakest since 2009.
This fits in with spot gold’s modest 1.8 percent decline over the year, but the breakdown of that demand shows where the pressure points are located.
India regained its status as the world’s top gold market, with demand totalling 842.7 tonnes, but this was still 14 percent below 2013 levels.
China slipped back to number two with 813.6 tonnes, a substantial 38 percent decline as consumers pulled back from buying gold after a record year in 2013. What happens in the two Asian powerhouses is important, as together they represent half of the global gold consumer demand.
It’s possible to construct a bullish case for India, as government restrictions on gold imports are eased and economic growth lifts, but the question remains as to how much extra demand the South Asian nation is capable of generating.
A return to levels around 1,000 tonnes per annum isn’t an unreasonable expectation, and this would no doubt provide support for the physical gold market.
But there is more of a question mark over China, with uncertainty over the strength of consumer demand following the buying spree in 2013 when gold prices fell sharply.
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