HSBC target gold 1625 $
Jewelry, ‘Retail’ Gold Buyers ‘the Key Support for Gold’: HSBC
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By Brendan Conway
Many U.S. investors who bought gold the last few years thought they were taking a position on Federal Reserve policy and the dangers those policies pose to the value of a dollar.
These investors may instead end up at the whim of gold jewelry buyers in China or India.
REUTERS
The wave of buying interest as gold’s price drops has gotten lots of attention lately — from unusually brisk coin sales by the U.S. Mint and elsewhere to suddenly higher demand in emerging markets. To HSBC strategists James Steel and Howard Wen, such retail demand (especially in China and India) “will be the key support for gold,” constituting “the main reason we expect prices to stabilize and move slowly higher.”
The pair estimate that a 15% rise in physical gold purchases in China and India would increase gold consumption by a little less than exchange-traded funds have already liquidated during 2013 — around 250 tons.
Here’s their breakdown of demand trends in the two countries, with retail demand one of the reasons they think gold could get as high as $1,625 per ounce.
India: 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.
China: 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.