Physical demand from emerging markets to drive gold in 2014

Jewelry demand lead way

HSBC -- the multinational banking and financial services company -- in its latest released gold analysis report has stated that physical demand for jewelry, coins and bars from China and other emerging markets will turn out to be the key driver for gold prices in 2014. The report further states that rampant outflows from gold Exchange Traded Funds (ETFs) may stabilize during the year.

According to HSBC, investment demand had fuelled the rally in gold prices during the past decade. But this investment demand has largely dried up and is no longer defining gold price movements. Instead, rising demand for physical gold out of China and other emerging economies has become the key driver of bullion prices in 2014.

The gold backed ETFs witnessed heavy selling to the tune of 881 tons in 2013. The bank believes that gold outflows may slow down during this year as the remaining holders are most likely long term holders. With gold prices showing signs of recovery, it is logical to assume that ETF outflows are more or less exhausted. In fact the bank forecasts a net ETF addition of 90 tons this year.

The report indicates that the growing appetite for gold in China helped the country to overtake India to become world’s largest bullion consumer in 2013. HSBC expects the gold demand out of the Chinese mainland to remain robust throughout this year as well.

Nonetheless, the bank has left the price forecasts for gold unchanged at an average of $1,292 per ounce for 2014, below current levels of $1,350.

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