Economic recovery in emerging markets to benefit consumer gold demand: WGC

Gold investment will remain well supported in 2021 while gold consumption should benefit from the nascent economic recovery, especially in emerging markets, the World Gold Council (WGC) said on Thursday.

Gold investment will remain well supported in 2021 while gold consumption should benefit from the nascent economic recovery, especially in emerging markets, the World Gold Council (WGC) said on Thursday. The COVID-19 pandemic raised uncertainty by compounding existing risks and creating new ones. But by the end of last year, investors were optimistic that the worst was over.

"Looking ahead, we believe that investors will likely see the low interest rate environment as an opportunity to add risk assets in the hope that economic recovery is on the immediate horizon," said WGC in its outlook report. Investors will likely also be navigating potential portfolio risks, including ballooning budget deficits, inflationary pressures and market corrections amid already high equity valuations.

WGC quoted market surveys indicating that most economists expect growth to recover in 2021 from its dismal performance during 2020. "And although global economic growth is likely to remain anaemic relative to its full potential for some time, gold's more stable price performance since mid-August may foster buying opportunities for consumers."

The economic recovery may particularly realise in countries like China, which suffered heavy losses in early 2020 before the spread of the pandemic was controlled more effectively than in many western countries. "Given the positive link between economic growth and Chinese demand, we believe that gold consumption in the region may continue to improve," said WGC.

Similarly, the Indian gold market appears to be on a stronger footing. Initial data from the Dhanteras festival in November suggest that while jewellery demand was still below average, it had substantially recovered from the lows seen in Q2 of last year. However, with the global economy operating well below potential and with gold prices at historical high levels, consumer demand may remain subdued in other regions.

"We anticipate that the economic recovery in some emerging markets like China and India may limit some of the headwinds the gold market experienced in 2020 caused by extremely weak gold consumption," said WGC. The WGC is a market development organisation for the industry. Its purpose is to stimulate and sustain demand, provide industry leadership and be the global authority on gold market. (ANI)

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