Gold demand seen expanding 15% by HSBC on Asia-to-ETP buying

[SINGAPORE] Gold demand will rebound in 2015 as bullion consumption in Asia increases and investors return to exchange-traded products backed by the metal, according to HSBC Securities (USA) Inc.

Global demand may rise 15 per cent to 4,127 metric tons this year, analysts James Steel and Howard Wen wrote in a report dated Jan. 14. Consumption reached a record 4,582.3 tons in 2011, when prices climbed to a peak of US$1,921.17 an ounce, according to data from the World Gold Council.

Gold last year posted the first back-to-back annual drop since 2000 as assets in bullion-backed ETPs contracted, the dollar advanced and U.S. equities surged. An economic slowdown in China and import restrictions in India also hurt gold purchases by the world's largest consumers in 2014. Rising Asian demand for gold may help bullion prices to recover after testing new lows this year, Barclays Plc said in report this week.

"Jewellery, coin and bar demand fell in 2014 from exceptionally high levels in 2013," Steel and Wen wrote. "We look for a moderate recovery this year based on anticipated demand from China and India, where long-term economic and demographic trends argue for increasing bullion demand." The two countries account for about half of global consumption.

Gold for immediate delivery traded little changed at US$1,227.74 an ounce at 7:06 a.m. in London, according to Bloomberg generic pricing. The metal is 3.7 per cent higher this year amid speculation that the Federal Reserve may hold off raising interest rates as a rout in commodities threatens to push inflation below the central bank's 2 per cent target.

Steel and Wen expect gold to average US$1,234 an ounce this year after averaging US$1,265.93 in 2014. Bullion will trade between US$1,120 and US$1,305 in 2015 as price-sensitive buyers in emerging markets define the price floor and ceiling, HSBC said.

UBS Group AG on Thursday lowered its bullion forecast for 2015 to US$1,190 from US$1,200. While the dollar's strength and higher rates will be considerable hurdles for gold, much of the adjustment had already been made in the last couple of years, UBS's Edel Tully and Joni Teves wrote in the Jan. 15 report.

Assets in gold-backed ETPs will probably expand 50 tons this year, according to HSBC. The holdings contracted 164.4 tons last year after plummeting 869.1 tons in 2013 as prices retreated, data compiled by Bloomberg show.

The accumulation of gold by central banks is likely to continue this year, helping support prices, the HSBC analysts wrote. Central banks, which have been net buyers since 2010 after two decades of sales, are forecast to add 400 tons this year after purchasing about 300 tons in 2014, according to HSBC.

After bullion drops this year, that'll pave the way for higher prices driven by consumption in the east, Barclays analysts Suki Cooper and Kevin Norrish wrote in a report. The global flow of gold from west to east will probably last for up to two decades as rising incomes spur demand, the China Gold Association forecast in June.

BLOOMBERG