LONDON - Gold could break above $1,500 an ounce this year for the first time since its 2013 crash, GFMS analysts at Thomson Reuters said on Thursday, with the risk of a drop in surging equities and political instability boosting its appeal as a haven from risk.
Physical demand is likely to be constrained as prices rise, however, with Chinese demand likely to have already peaked some years ago and Indian consumption seen only matching last year's levels.
The metal has already hit its highest since early September this month, lifted by a slide in the dollar to three-year lows against the euro.
In the final update to its Gold Survey 2017, GFMS said other factors feeding into that could lift gold to an average $1,360 an ounce this year.
"The geopolitical climate and equity markets - (which are at) growing risk of a sharp correction - will be key drivers," GFMS analyst Saida Litosh said.
"We expect to see higher volatility due to increased uncertainty revolving around Trump's politics, Brexit and tensions in Europe, and a pick up in retail investment demand from Asia particularly should we see gold's price momentum going forward."
GFMS predicted that Indian physical demand would remain at similar levels to last year.
Indian jewellery consumption rose by nearly a third last year to 611.2 tonnes, GFMS said, while fabrication rose by a steeper 56 percent as retailers moved into the organised sector after the demonetisation of some banknotes in late 2016.
Chinese jewellery fabrication fell by 3 percent last year and is likely to move lower still this year, it said.
"China's gold demand is likely to have already peaked in 2013, and is very unlikely to re-reach that level in the future, regardless of the state of the domestic economy," it said.
"The reality is that the Chinese community is shifting away from treating gold jewellery as a safe haven asset to a fashionable complementary, especially to the younger generation."
Chinese investment demand would likely pick up if prices kept up their momentum, however, it said.
Overall global jewellery fabrication demand rose 13 percent last year, with stronger purchases in India, Russia and North America offsetting weakness in China.
Central bank demand was also stronger, GFMS said, with Turkey joining Russia as a major buyer late in the year.
Official sector purchases were up by nearly half despite the continued absence of China from the market.