The one victim of gold's sensational run over the last few years has been consumer demand, which has plummeted because of the high prices.
But that could change soon, according to UBS analyst Dominic Schnider. He expects jewellery demand to pick up in the coming quarters, noting that it tends to recover "with a lag" after a sharp increase in the gold price. He also pointed out that demand from India is already improving, though only marginally so far.
"With the solid economic recovery in emerging markets, wealth creation should provide the basis for demand growth and pent-up demand to find its way to the market," Mr. Schnider wrote in a note. "Mounting inflation in key emerging market economies will also render support."
He expects jewellery demand to recover by about 20% from 2009 levels, which is quite a lot by historical standards. That recovery will be needed to compensate for lower demand from investors, he noted.
He is using a target price on gold of US$1,250 to US$1,300 an ounce over the next 12 months, and views prices at or below US$1,100 as a good buying opportunity.