Gold rally’s Achilles heel may be soft China, India demand – by Clyde Russell (Daily Mail/Reuters – August 2, 2016)

LAUNCESTON, Australia, Aug 2 (Reuters) – There is little doubt that gold has had a stellar year so far, surging almost 28 percent, but there may be some areas of concern emerging that could act as a brake on further gains.

The rally in spot gold to Monday’s close of $1,352.85 an ounce has largely been driven by what may generally be termed the fear trade, as investors sought the safety of the precious metal amid mounting economic worries, predominantly in the Western world.

The price spike in the wake of the surprise vote by Britain to abandon the European Union is a case in point, with gold jumping as much as 8.2 percent on June 24 as the results came in.

The winding back of expectations for U.S. interest rate hikes, volatility in equities, some bond yields turning negative, the possibility of Donald Trump winning the U.S. presidency and general fears around the global outlook have all contributed to gold’s solid performance and constructive outlook.

So what is standing in the way of further gains for the yellow metal? The main obstacle that appears to be discounted by the market is lacklustre demand in the world’s top two physical consumers, China and India.

China’s gold demand for jewellery slumped to 83.8 tonnes in the second quarter of 2016, down almost 36 percent from the first quarter and 24.1 percent from the same quarter last year, according to data from consultancy GFMS.

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