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30 July, 2015

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Global Gold Demand Dips to Lowest Level Since 2009–Is it Good Time to Buy?

Global Gold Demand Dips to Lowest Level Since 2009 - Is it Good Time to Buy? ; What Factors are Causing the Gold to Fall; Is China or Greece behind the Gold Fall or is it the Domestic Demand?

The global demand for gold fell by 14 per cent in the June quarter to 858 tonnes against 1,000 tonnes in the same period last year. The fall in demand was the sharpest in the last six years, said a Thomson Reuters study.Almost all major physical gold markets suffered in the second quarter as retail investment fell by 12 per cent even as the yellow metal’s prices dipped 7.5 per cent in dollar terms.While jewellery production declined by six per cent to 478 tonnes in the June quarter, consumption of gold by this sector was down nine per cent to 444 tonnes, it said.

Analysts feel this is not the time to go bottom fishing. Global gold prices touched a 5-year low of $1,090 per troy ounce (31.1 gram) on 22 July, down more than 42% from the all-time peak of $1,900 reached in September 2011. Though prices bounced back a bit on Thursday, experts feel more pain is in store. The metal is trading very close to the support level of $1,080. If it falls below $1,080, prices could recede by another 4-8% in the international market. "If the $1,080 support is broken, the next major supports are $1,040 and $990," says CP Krishnan, whole time director, Geojit Comtrade.

Factors Pulling Down Gold

Gold is down because recent events have led to a reduction in risk aversion. The Greek crisis has been resolved and Iran has signed the nuclear deal with the US. China, the largest consumer of the metal, has witnessed large scale selling. And fears of an interest rate hike by the US Fed have buoyed the dollar. Experts say there is nothing that can trigger a rally in gold right now. "Gold is the least preferred asset class right now," says Krishnan. The total gold holdings in SPDR Gold Trust, the largest gold ETF in the world, coming down from 1,291 tonnes in 2012 to 690 tonnes now, a fall of 47%, reflects this shift.

The Chinese ornamental gold demand is expected to get affected in coming months because of the economic problems there. In India, the compulsory PAN requirement for purchase of more than Rs 1 lakh has already started affecting demand. The monsoon season is anyway a lean period for gold demand in India. "Since we are in the middle of a lean period, there is no need to jump in right now. Investors should wait for 2-3 months more," says Manoj Kumar Jain, director (commodities & forex), IndiaNivesh Commodities.

Till now, domestic gold prices were cushioned from the global crash due to the depreciation of the rupee against the dollar. But the rupee has stabilised in recent weeks and there is also a possibility of it appreciating. "If that happens, it will be a double whammy for domestic gold investors," says Pitre.


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