With the demand for gold currently weak from China and India, the largest gold consumers, prices for the precious metal (Au) have continued to decline, according to a Capital Economics note.
However, the research group predicts that Chinese demand will soon recover thanks in part to a renewed escalation of the euro zone crisis, which will "spark strong safe haven flows for gold." The report predicts that the price of gold will increase from its current low around $1,620 per ounce to $2,000 by the end of the year.
Gold prices have been declining over the past year after increasing seven-fold in the preceding decade. While it has proven more resilient than many other commodities suffering from a drop in demand in 2012, gold's current price still remains 10 percent below its peak in February of this year.
Capital Economics, notes three specific reasons for the decline in gold: returning confidence in the dollar, markets treating the euro zone crisis as a peripheral issue and German bunds retaining safe haven status.
Data from the World Gold Council displays that Chinese demand decreased 7.1 percent from its position last year, falling 10 percent from the first quarter.
According to a report produced by Thomson Reuters on Thursday, indicates that the declining demand from China and India is gradually important as a fourth factor.
India's demand, meanwhile, the world's largest market for gold, dropped 13.2 percent from the first quarter, showing a massive 38 percent decline from its position last year.
The World Gold Council cites numerous factors that have allowed the "challenging economic climate" for gold to persist, including the weakness in the rupee, monsoon weather conditions, government efforts to curb gold imports and a general slowing of the Indian economy.
Despite recent trends, the Capital Economics report offered three reasons why India's and China's weakened demand will not, at least on their own, prevent the price of gold from making a comeback.
The price of gold for the most actively traded contract in New York slipped to $1,617.90 in Monday midday trading.
With the declining of gold on the rise, one can wonder if it will have a direct effect on the economy and job market as well.One thing is for certain, as gold and the U.S. dollar both lose monetary value, consumers are less likely to spend due to fear of a collapsing economy.
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