Global demand for gold for jewellery fabrication is expected to touch a three-year high of 2,186 tonnes in 2018, according to independent precious metals consultancy Metal Focus. India’s jewellery demand is estimated at 573.3 tonnes in 2018, up 14 per cent from 2017. China is expected to see a 3 per cent rise at 646.9 tonnes.
Apart from demand for jewellery fabrication, physical investment is expected to improve 4 per cent, while net official sector purchases are projected to decline marginally, Metal Focus said in its annual report, Gold Focus 2018, released on Wednesday. Overall high demand along with potential challenges on the economic and political front will be positive for gold prices.
On the flip side, gold mine supply will mark a decade of growth, edging higher in 2018 by just 0.1 per cent, to a new peak, according to the report.
Gold demand in India has been higher last year as well, but continuation of the trend is seen as a positive sign.
Investor preference for equities despite the recent volatility, together with rising bond yields, were headwinds for gold prices, the report said.
Metals Focus expects gold prices to break higher in the second half of 2018, potentially testing $1,450 before the end of this year. The consultancy forecasts the full-year average price at $1345, $15 higher than the average price last quarter.
“Prices will rise since the dollar is likely to resume its secular downtrend. Real short-term rates will also stay negative for some time to come,” said Nikos Kavalis, director, Metals Focus.
“The twin deficits in the US (fiscal and trade) will lower investor appetite for bonds and the yield curve is likely to flatten further,” he added.
This, coupled with the potential for a correction in equities, will benefit gold. Although US interest rate increases are likely to act as a headwind, their impact on the gold prices will be limited since they are largely priced-in.