According to HSBC analysts, demand from emerging markets is changing the nature of the bullion market.
Until recently, investment demand was the primary driver of gold, but emerging-market demand, which is price-sensitive, has become an increasingly important stimulus of gold prices.
The range for gold is largely defined by buyers and sellers from emerging markets. Prices near $1,100 /oz attract buyers, while prices near $1,300 cause them to “shy away from purchases,” the HSBC analysts said.
Analysts also note that emerging-market central banks have contributed to purchases and they expect official-sector buying to rise by 25% in 2015.
As HSBC notes, gold demand in China has been lowered by an economic slowdown, weakened demand for luxury goods, a reduction in official gift giving and strong domestic mine output - which all contributed to the nation’s slowing appetite for imported gold.
However, China’s imports are still extremely strong.
2014 marked the second best year for bullion demand in the history of China. Ahead of the five-year average, this year is also going well.
Buyers in important gold-consuming nations such as China, India, Indonesia, Vietnam and other emerging markets, “may have fewer tools at their disposal with which to protect savings and household wealth against rising prices or low or negative real interest rates,” the analysts said.
As the yellow metal is viewed as an “efficient and reliable store of value”, in these countries, it keeps being very popular there.
HSBC notes that annual per-capital consumption of gold in India and China is relatively low at one gram, but that also leaves “significant room for growth.”
On Wednesday gold prices were modestly lower in early U.S. trade.
August Comex gold was last down $2.80 at $1,178.20 an ounce. July Comex silver was last down $0.03 at $15.935 an ounce.
