After a phase of consolidation for nearly six months, Nomura expects gold prices to rise in the second half. Nomura in a report on the Gold sector says that the first half of 2012 was a period of all round negative sentiment for gold with substantial headwinds.
Part of the reason for weakness was a low demand for gold jewellery in India, which lost it top consumer ranking to China.
However, Nomura believes the worst is behind us as far as gold prices are concerned. It cites the following reasons to justify its bull case for the precious metal.
- Third quarter is a seasonally strong quarter for Indian demand. Nomura expects Indian rupee to stabalise in the short term and grow stronger over the next two years, which will aid in pick-up of gold demand.
- Despite the erosion of Indian volume (19 per cent drop in jewellery and 46 per cent lower in investment), gold prices have held on admirably. Any pick up in Indian demand can take the prices higher.
- Exceptionally strong demand from China will support strong gold prices.
- Scrap gold supply has slowed down.
- New mine capacity addition will not be sufficient to meet the spike in demand.
- Increasing gold holding by central banks. Despite the recent buying gold holdings as a percentage of central banks reserves are at historical lows.
- Persisting negative real interest rates will result in investors diverting their saving to gold
- Prospect of further monetary easing in Euro and US
- Continued pressures on the peripheral euro zone countries and banking systems are likely to see physical bar investment.
- Structural changes of the world reserve currency structure.
- Peak in Chinese foreign exchange reserves.