By Giles Coghlan, Chief Currency Analyst at HYCM
Gold demand from India has now risen by about 25% y/y in July and that is almost double from June’s levels as lockdowns start to ease from the COVID-19 pandemic. Furthermore, pent up demand could further materialise as the peak season comes. Gold tends to do very well seasonally.
China imports show signs of recovery
The rally in gold has been mainly driven by investment demand. Retail demand has fallen due to lockdown restrictions. It has been gold-backed ETFs which have jumped back to record highs. For example, SPDR Gold Shares (GLD) which are the largest fund backed by physical gold in the world, has been the most popular gold ETF in the month of July attracting a whopping more than $3 billion in assets. These heavy bids have helped gold up more than 35% year to date and about 40% since bottoming out in March. So, news that China’s gold imports are starting to recover is welcome music to the gold bull’s ears.
Jewelry makes up about half of all global demand even though there have been some recent declines. So consumer demand picking up again is further good news for investors. Looking at seasonal demand for gold and you can see the strong seasonal demand for gold in August. Wedding season in India helps this along nicely.
So, getting into gold’s rally again if you have missed it or want to re-enter should now involve waiting for a clear signal on the higher timeframe. As tempting as the push higher might be a pullback will come and that is the thing to wait for now. Patience is the name of the game as there should be many chunks of this bull run to take out along the way. Just don’t get impatient. Patience will pay you here. Wait for the pullback.
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