Feb 3 – Gold’s rally this year has been driven mainly by what may be termed Western factors, namely buying on the back of worries over the state of the global economy and the subsequent desire for safe haven assets.
Spot gold has jumped 6.3 percent to around $1,127 an ounce since the start of year, bringing out bullish views that the yellow metal’s dark years since the peak near $2,000 in September 2011 are finally over.
Falling equity markets, both in developed and developing markets, credit and currency worries in China and monetary easing from major central banks other than the U.S. Federal Reserve have made gold look more attractive.
But for any rally to be sustained, much will depend on the reaction of consumers in the two Asian giants, India and China, the world’s biggest gold buyers that together account for almost half of physical demand.
There are contradictory forces at work for gold demand in both those countries, notwithstanding the generally positive medium- to long-term outlook for the precious metal for both.
In China, consumer demand for gold could be boosted by worries over yuan depreciation, as buying gold is one of the few ways the middle class can hedge against a weaker local currency.
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