Price of Gold Flat in 2014 - but Indian Demand Roars Higher

Even though the price of gold is on track for a 3% gain today (Monday) at $1,217 an ounce, the yellow metal is far off its last peak of $1,340.25 on July 10. And today's surge will only put gold prices near a breakeven level for 2014 - the metal traded at $1,225 an ounce in early January.

Still, despite gold's struggle to gain ground in global markets this year, demand for physical gold in Asia remains strong.

Asia accounts for roughly two-thirds of global gold demand. China and India are the world's biggest consumers of the yellow metal. The two have vied with each other for the top spot for years - a battle that underpins gold prices.

China took the crown from India in 2011 after China saw a 60% surge in jewelry demand in Q3 that year. The two countries traded back and forth in 2012. China solidly held the title in 2013.

But on Nov. 13, India regained the top spot.

Here's what vaulted India back into the lead - and how this change will affect the price of gold into 2015...

India's Gold Demand Surge

According to the World Gold Council, Indian jewelry demand popped nearly 60% in the third quarter this year - a trend Money Morning Resource Specialist Peter Krauth predicted back in June. The country bought 225.1 tons of gold jewelry, coins, and bars in Q3.

price of goldMeanwhile, Chinese buying slowed, with its jewelry demand down by some 39%. The country bought 182.7 tons of jewelry, coins, and bars in Q3.

With gold prices down more than 8% in rupees in the past four months, Indian buyers have flocked to the metal, buying 39% more. The Diwali festival and the wedding season also fueled the surge.

Impressive Q3 Indian demand numbers don't even include the vast amount of gold buying that's unaccounted for in the country right now...

"Hidden" Gold Demand

Just on Nov. 28, India scrapped its highly restrictive gold import laws.

Before that (and for all of Q3), these taxes and duties caused a massive wave of gold smuggling over the last few years. An estimated 200 tons crossed its borders in 2013 alone.

"It is now beyond debate that import restrictions have had little impact on the demand for gold and yet have strengthened the unauthorized supply channels," said P.R. Somasundaram, India's Managing Director at the World Gold Council (WGC).

Limited worldwide supplies have also fueled demand and smuggling. Total supply fell by 7% in Q3 2013, according to the WGC. Mining output is being limited by low gold prices. Gold recycling also hit a seven-year low - sellers are less incentivized to recycle when the price of gold is low.

All these factors equal a major buying signal for gold investors...

Playing the Price of Gold for Maximum Profit

The outlook for physical demand remains robust.

"The next major buying waves should come from the West in the run-up toward Christmas holidays," Krauth said.

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Demand will gain again as we approach Valentine's Day, followed by the biggest holiday in China - the Chinese New Year - in mid-February.

"India and China are the 800-pound gorillas in the gold market," Krauth said. "This means stocking up on gold ahead of the big Asian buying seasons could well get you a better deal."

The price of gold today was up roughly 3% to $1,216.70 an ounce as of 2:30 p.m. EST. The Indian government's Friday announcement that it will relax gold import laws contributed to the rise. Monday's weaker U.S. dollar index and collapsing crude oil prices also lifted the yellow metal.

More on Gold Investing: Gold prices have taken a beating in recent months, tumbling to four-year lows. But love it or hate it, gold is a smart way to manage risk in your portfolio. Our Chief Investment Strategist Keith Fitz-Gerald shared with readers the perfect strategy for gold investing in moments like this. Use his test to determine if you own the right amount of yellow metal in your portfolio - then, use this tip for the best way to buy more...