Demand from countries outside the U.S. is often a pivotal factor for gold and the related exchange traded products, such as the SPDR Gold Shares (NYSEArca: GLD). With that in mind, there could be some favorable demand catalysts on the horizon for the yellow metal.
Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield.
In the face of a stronger dollar and speculation that the Federal Reserve could raise interest rates as many as three times this year, gold prices could move modestly higher with some help from emerging markets, namely China and India.
“But news this week suggests India’s gold demand is coming back to life — for the first time in nearly a year. Preliminary statistics on India’s February gold imports showed a major lift. With gold experts GFMS estimating that the country brought in 50 tonnes of bullion during the month — up 82% from the 27.4 tonnes Indian buyers imported during February 2016,” according to ETF Daily News.
Indian demand is vital for gold because the country is the second-largest buyer of the yellow metal behind China. India, one of the world’s largest gold consumers, could be set to lower its import tax on bullion, which could be major catalyst for gold prices.
Still, emerging market demand for gold has not picked up yet. For instance, China has shown little demand, with the Shanghai Gold Exchange seeing little growth in volume.
“The return of India to the gold market makes sense. Given that many of the factors weighing on demand in 2016 were temporary — including a jewellers strike early in the year, and a cash crunch triggered by demonetization of small bank notes in November,” reports ETF Daily News. “The demonetization effect had been weighing on India’s gold markets even into January. But the strong February import stats show that the worst may now be over, with Indian consumers making their way back to the market.”
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.