Why Retail Demand From Asia Will Help Stabilise Gold Prices: HSBC

Getty/Julian Herbert

Gold got smashed this month. The metal suffered its biggest single two-day fall in 30 years, as investors pulled out of commodities and into equities and bonds.

Despite the rout, rising demand for jewellery and gold coin purchases from Asia will stabilise prices, said HSBC chief precious metals analyst James Steel.

Steel, in a report out this morning, said price support would come form India and China especially.

“This [retail demand] will be the key support for gold and is the main reason we expect prices to stabilize and move slowly higher,” he said.

“Lower prices attract greater buying, especially in India and China.”

Jewellery makes up most of the total demand at 45 per cent. Coins and bars, Steel writes, are smaller. But also important.

“The majority of this demand comes from the price-sensitive markets, especially India and China,” explained Steel.

From the report:

Physical demand in India – the world’s largest gold consumer – is responding to the price drop. According to Bombay Bullion Association president Mohit Kamboj, India’s gold imports are likely to increase by up to 20% y-o-y, to 183.6t, in 2Q 2013, due to lower prices in local currency terms.

Given the gold strong culture in India, there may be also be a switch out of paper assets and into gold.

Bullion retailers in China reported a surge in gold sales in the wake of the price drop. Chow Sang Sang Holdings International director of sales operations Dennis Lau said that gold sales jumped by 150% in Hong Kong and Macau during the 13 April weekend compared with the previous weekend.

Customer traffic rose as much as 40% on 16 April from a week earlier, said Mr. Lau. A high Shanghai premium has been a feature of the market since mid-April. This indicates strong import demand for gold into China. Combined Sino-Indian gold imports totaled c1,700t in 2012, about 60% of mine supply.

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