"Physical gold demand in China and India were held back in 2014 amid high stocks and import controls, respectively," said Victor Thianpiriya, commodity strategist at ANZ. "Both these shackles have been removed, putting demand on a solid footing as we head into 2015."
In China, physical gold demand will return because stocks are depleting, said Thianpiriya, who sees the precious metal ending 2015 at $1,280 an ounce, up from $1,200 currently.
"Strong demand through the back half of 2013 and into 2014 resulted
in a significant onshore stock build in China. This further resulted in
subdued levels of imports through the second half of 2014, which has
helped to run down the onshore build-up of stocks," he explained.
India, meanwhile, removed restrictions on gold imports late-November in a move that is expected to reduce smuggling and raise legal shipments.
Traders are no longer required to export 20 percent of all gold imported into the country – a measure that was introduced last year to lower inbound shipments and reduce the country's current account deficit.
"This has significantly changed the landscape for the market in India,
opening up all import channels once more," said Thianpiriya.
David Lennox, resource analyst at Fat Prophets says while dollar
strength may be headwind for gold in the first-half, the currency is
likely to ease in the second-half following the Federal Reserve's first
rate hike. This should provide some support for gold later in the year,
he said.
Lennox expects these factors, alongside a slowdown in gold supply, could push prices up to around $1,350 by year end.
The drop in gold prices has forced higher-cost producers to cut back on production, said Lennox.
