According to many market observers, Asia’s economic growth rate will decline significantly in the coming months – with China and India in particular affected. In order to curtail rising prices, the People’s Bank of China (PBC) has tightened its monetary policy several times since October last year, and has announced further restrictive measures. But despite increasingly hawkish policies from some of the continent’s central banks, world-wide demand for commodities is not expected to decline over the next few years, with base and precious metal prices expected to rise.
Many analysts think that the PBC’s anti-inflation measures have been too weak to make a difference, though many fear that Asia‘s economic growth could slow significantly in the foreseeable future – fears that have hurt the prices of base metals such as copper, zinc and aluminum. Others differ, however, and see Chinese demand picking up in the second half of this year. Many industrial end consumers are reducing their inventories drastically as a result of high commodity prices, and will have to return to the market soon to replenish their inventories.
As Firoz G. Merchant, chairman and founder of Pure Gold Jewellers, told Khaleej Times in an interview, other factors are expected to support precious metal prices, including the geopolitical situation in the Middle East and North Africa, which is likely to support high oil prices. Financial instability across Europe and the United States is also boosting demand for gold and silver, while accelerating inflation in several Asian economies is also causing many Asians to buy gold and silver as hedges against depreciating currencies. Merchant, founder of one of the fastest growing jewellery houses in the Middle East, added that he expects growth rates in large parts of Asia to remain high enough to support the demand for a wide range of commodities.
Merchant said that oil prices will likely remain in an upward trend in the coming years, and that we could see oil prices climbing to $200 a barrel, which in his view could become the new “normal”. However, due to the volatility in the crude oil sector, a growing number of investors at the international capital markets would favour investments in gold over oil. The yellow metal’s appeal among investors was on the rise due to better investment returns in the last couple of years. The growing demand for physical gold in China and India will result in a continuance of the yellow metal’s upward trend.
Merchant forecasts that the gold price will trade in a range between $1,700 and $1,800 per ounce later this year. In his view, the gold price has the potential to reach $3,000 per ounce in three to five years, with investors fleeing to gold owing to currency debasement and debt problems.
Source: Gold Money
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