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The income effect implies that consumer purchasing power increases as real wages rise, and as such, the demand for gold will increase as more people can afford to buy it. In Asia over the past few decades, the income effect has been dominant. The Asian economies (particularly China and India) have enjoyed strong growth, but still have a relatively tightly regulated and narrow financial system.
After a relatively uneventful few months for the gold market, prices broke out of their six-month range in dramatic fashion last week. Gold’s fall below the crucial USD1,130/oz level has seen the metal trade to a fresh five-year low of USD1,078/oz in recent days. While the market has since gained some composure, we expect further downside to ensue given the significant shift in market positioning. Market positioning is reflecting a renewed negativity towards gold.
March 18, 2015 1:30 a.m. ET ASIA’S FINANCIAL TRANSFORMATION The income effect implies that consumer purchasing power increases as real wages rise, and as such, the demand for gold will increase as more people can afford to buy it. In Asia over the past few decades, the income effect has been dominant. The Asian economies (particularly China and India) have enjoyed strong growth, but still have a relatively tightly regulated and narrow financial system.
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