Demand for Gold soars ahead of Asia’s festive season
Commodity Online | August 30 2016
UPDATED 15:39:01 IST

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By Ben Barlow  
Gold has been prized by mankind since time immemorial. Cherished for its bright and beautiful loveliness, it has been used as currency, as a status symbol, and as a mark of affection for thousands of years. We use it to signify our love, to bind ourselves in marriage, and to buy a life of privilege. The earliest of societies esteemed it, the richest of cultures revered it, and even the most developed civilisations in our modern world continue to view it as the ultimate mark of wealth and prestige. Today, its lure is as great as it has ever been.

Especially in recent months. With Asia building up to its upcoming festivities, the demand for psychical gold has soared across the entirety of the continent, with jewellers experiencing a surge in business. Here, we look at why gold still matters in our modern society, and the impact that upcoming celebrations will have on the market.

The Demand for Physical Gold Increases
Unlike many investment instruments, physical gold is a more tangible asset than most of its counterparts. We can see it, feel it, touch it, and handle it. The factors that impact its value are the same as those which affect the price you would pay if you were to walk into a store and buy yourself a piece of jewellery as a present, and this means that a lot of investors find it a simple market to understand.

It is for this reason that we need to be aware of how demand for this precious metal stands, and as of this week, the desire for it has risen throughout Asia. With consumers enjoying a spending spree catalysed by upcoming festivals in both India and China, people are buying, and the coffers of jewellers and mining companies are quickly filling up.

Growing Demand in India
India offers an especially interesting example. The world’s second biggest gold consumer, it is a nation which always helps to fund gold-related enterprises, and the prices its dealers are offering are now rising, enabling them to make increased profits.

The reason for this is simple: as demand rises, discount margins are lessening. An increasing number of jewellers are approaching dealers, and this means that they can essentially name their price. Thus, they are offering smaller reductions in value, with $52 an ounce over the global spot benchmark, compared to up to $60 last week.

A Mumbai-based bullion dealer explained that: “Large jewellers have started building inventory for the upcoming festival season. In coming weeks, demand is expected to pick up further if prices remain stable at their current level.”

This will be a welcome turnaround from the trend spotted earlier in 2016, which saw gold demand fall to its lowest level for seven years. According to a statement from the World Gold Council on August 11th, the imminent monsoon rains will soon spur rural demand, helping lost ground to be recouped during the peak festive season.

Indeed, jewellery is a traditional investment for those who live in remote villages, and it seems unlikely that it will be superseded in this role at any time in the near future.

Should it follow its typical pattern, the quarter ending in December will deliver around a third of India’s gold sales, mainly accumulated thanks to the beginning of the traditional wedding season, and annual festivals like Dhanteras and Diwali. During these times, its purchase is considered auspicious, which inevitably increases the demand for it.

Growing Demand in China
It’s not only in India that demand is expected to soar, but also in China. Currently, China is the world’s foremost consumer of gold, and its bullion prices sit at a premium rate of $1.50 per ounce to the global benchmark. Premiums in Hong Kong are at roughly 10 cents an ounce, from 20-60 cents previously.

These steady premiums are attributable to an imminent annual festival, which always takes place in September. As analyst Zhirui Ji clarifies, this makes the lead-up to mid-autumn a prime time for jewellery fabricators to replenish and restock their depleted inventories, thus encouraging premiums to rise. Indeed, this catalysed a growth to around 50-60 cents in Singapore last week, up from 20-30 cents previously.

As Brian Lan, the managing direction of a Singapore-based gold dealer explains: “[The] physical side is seeing some enquiries, and most of them are looking with a long-term perspective as there is too much uncertainty in the market.”

Gold as a Hedge
Such uncertainty is always good news for physical gold, thanks to its long-held status as a safe haven asset. This makes it an ideal hedge against financial uncertainties, as even in the worst of times, it will tend to hold its value, if not increase it. Clearly, such qualities are attractive when other markets are in tumult, as they help to balance a portfolio and reduce its level of risk.

With Brexit and the many other momentous events we have seen this year, it should then come as little surprise that gold has stayed true to its nature, its value soaring by over 27 per cent during 2016. As a result, it is now trading at an impressive $1,347, meaning that it is on a trajectory which could end with its largest recorded annual gain since 2010.

And these gains have not only been recorded in China and India, the first and second biggest consumers of gold. The value of bullion also remains in steady good health in Tokyo, selling at 25 cents per ounce discount. Elsewhere, too, similar trends can be seen.

Interestingly, this looks unlikely to change anytime soon. Many other financial markets remain in tumult, with the result being that investors are struggling with increasingly volatile portfolios. As more and more of them come to terms with this, they will turn to gold to help balance their risk level, thus boosting demand for it, and increasing its value.

If you’re looking for a safe bet for your next investment, then perhaps it would be a wise move to contact a broker like ETX Capital today, and add some gold to your portfolio.