Mumbai: Gold prices could rise above $1,200 an ounce in the next few months as fears of a currency war following the devaluation of the yuan make equity markets choppy, boosting physical gold and ETF buying, leading industry analysts said at a conference.
The metal has already rebounded about eight per cent from July’s 5-1/2 year low, boosted by minutes of the Fed’s last policy meeting that dented expectations for an imminent rise in US rates. Spot prices hit a peak of $1,168.40 on Friday.
“After the devaluation of the Chinese currency, people are worried,” said Rajan Venkatesh, head of India bullion at ScotiaMocatta, part of Canada’s Bank of Nova Scotia. “They are afraid of a currency war. They are going back to gold.”
Prices could rise to $1,230 to $1,240 within a month, he said on the sidelines of the International Gold Convention in the city of Panaji in western Goa state.
Michael Mesaric, chief executive of the world’s biggest gold refiner, Valcambi, said deposits in gold-backed exchange-traded funds are hovering near their lowest levels since 2008 but current prices will attract new buying.
He expects gold prices to rise to $1,350 by mid 2016.
The recent bounce notwithstanding, gold has been under heavy pressure this year from expectations the Fed would raise rates for the first time in nearly a decade, lifting the opportunity cost of holding non-yielding bullion while boosting the dollar.
But analysts like Jeffrey Rhodes, founder of Dubai-based precious metals consultancy RPMC, said: “All the bad news for gold is in the press”.
“There is room in the world for strong dollar and strong gold,” said Rhodes, expecting higher demand in countries such as India, China and Greece, where currencies are depreciating. “And strong gold is an alternative to emerging market currency.”
India’s gold demand might reach 950 tonnes this year as lower prices spur buying during the peak festival season and for weddings, the world’s biggest gold refiner, Valcambi, said.
Stronger demand in the world’s second-biggest gold consumer could support global prices, which rebounded this week after hitting a 5-1/2 year low under $1,100 an ounce in July.
Valcambi chief executive Michael Mesaric said gold demand would be strong this year. “It could be between 900 tonnes to 950 tonnes,” he said on the sidelines of the convention.
Demand for gold jewellery is usually robust in the final quarter as India celebrates festivals such as Diwali and Dussehra, when buying the metal is considered auspicious.
“All this should boost demand,” said Alistair Hewitt, the World Gold Council’s (WGC) market intelligence director.
In the first half of 2015, Indian demand fell 7pc from a year earlier to 346.2 tonnes. But gold prices in India have risen more than 11pc since hitting their lowest in four years in late July.
Industry officials say Indian demand is determined more by perceptions about future price movements.