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While gold prices (XAUUSD:CUR) could face resistance near historical high, demand in the world’s second-largest consumer of gold, India, is likely to remain strong despite higher prices, helped by forecasts of above-normal rainfall and favourable macroeconomic backdrop, ANZ analysts said on Monday.
Gold imports increased by 26% y/y to 230t in the first five months of 2024, despite prices hitting a record above $2,400/oz. A forecast for above-average monsoon rainfall could help revive rural incomes, boosting gold buying in rural areas, ANZ analysts added, as they kept the short-term price target unchanged at $2,500/oz.
Higher prices (XAUUSD:CUR) are still dampening demand, but sensitivity has diminished over the past year, with India’s central bank likely adding 70t to its reserves over 2024, the brokerage said in a note dated July 15.
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“Despite a rise in gold’s price of more than 10% in 2023, consumer demand stayed buoyant at 760t, a marginal decline of only 2%y/y. The demand was also in line with the long-term (2013–22)average of 755t.”
Since India’s gold demand is largely driven by physical demand, particularly of jewellery, rising per capita income will be a key driver in the long term, ANZ analysts added.
Furthermore, above-average rainfall tends to increase rural income, boosting gold buying by the rural population, which contributes a significant share of total gold consumption, especially for jewellery. In addition, any favourable reduction in import duty is also expected to be tailwinds for demand in the short term.
Looking into the charts, the current momentum in prices could take gold towards $2,450/oz, the record high, however, a break of this key resistance will be crucial for the uptrend to continue, ANZ noted. “On the downside, prices have formed a strong bottom near $2,300/oz, while trend support lies near $2,340/oz. A downside break of $2,300/oz could trigger a fresh selloff.”
On the day, spot gold (XAUUSD:CUR) was trading +0.02% up at $2,411.66 by 6 am ET, having logged three-straight weeks of gains.