Correlation between gold prices and demand
Moneylife Digital Team 23 April 2013

Brokerage firm Nomura believes that the recent spike in demand for gold in India as a temporary anomaly given the positive correlation between the gold price and demand since 2009

The correlation between the gold price and gold demand (import volume) in India has shifted from being negative pre-2008 to positive since 2009. This means that in recent years a rising gold price was accompanied by rising demand, and vice-versa. These observations were made by brokerage firm Nomura in its report on gold prices and demand in India.

 

 

The change in correlation reflects a change in perception, away from demand being

mainly for consumption and traditional purposes (weddings and religious ceremonies) towards a growing affinity for gold as an investment asset class—where rising prices fuelled even larger investment demand (post 2009), according to Nomura.

 

The recent fall in gold price led to a sharp demand spike, seemingly reversing the correlation, but the brokerage believes this is only a temporary blip as consumers bring forward demand viewing this as a buy-on-dip opportunity. However, if the gold price continues to fall, we would expect the recent surge in demand to falter as investment demand declines, adds the brokerage.

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