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UBS: Gold-Investment Demand Offsetting Soft Physical Market

Investment demand for gold is more than offsetting weakness in the physical market, thereby driving prices higher so far this year, says UBS. “Many are becoming increasingly convinced about gold's strength and believe that the market has entered a new phase,” UBS says, noting it has a “constructive” view on the metal. “Those who are looking for higher gold prices argue that low/negative interest rate environments, deteriorating confidence (in) central banks and the effectiveness of monetary policy, currency depreciation and downside risks to equities markets should all make a case for more upside.” Meanwhile, there has been a “soft patch” in the physical market, which UBS chalks up to factors such as seasonality and the strike by jewelers in India. However, UBS is upbeat about physical demand for the longer term. “Our base case is that demand trends are broadly intact and while appetite may not be as impressive as it was back in 2013-2014, physical demand should be resilient, particularly those that are linked to culture and traditions,” UBS says. “Despite a slowdown in economic growth, the expectation that GDP (gross domestic product) per capita would continue to rise should help underpin gold-buying prospects.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

HSBC: Good Monsoon Season Expected In India, Could Boost Gold Demand

Thursday April 14, 2016 9:41

Early forecasts are for an improved monsoon season in India, which should bode well for gold, says HSBC. The physical market in the country is “gradually returning to life” after a long strike by jewelers protesting government tax policies, the bank says. As the market returns to normal, factors such as income will determine gold demand in the country. This is where the monsoon comes into play, HSBC explains. “The majority of gold in India is bought in the rural sector, where incomes are determined by the harvest, which in turn is heavily related to the monsoon,” HSBC says. “The better the monsoon, the greater the harvest, which boosts agricultural income and helps support the demand for gold.” Last year’s monsoon was not good and gold demand was sluggish, the bank continues. However, for this year, the India Meteorological Department is forecasting that rainfall from June is seen at 106% of the 50-year average as El Nino weakens, HSBC points out. “This has already stimulated planting preparations, according to the Ministry for Agriculture,” HSBC says. “A good monsoon and a good harvest could aid Indian gold demand.”

By Allen Sykora of Kitco News; asykora@kitco.com

 

 

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