Indians Bet Big on Gold Price

By: EW News Desk Team   Date: 22 August 2011

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EW News Desk Team

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22 August 2011

Gold buyers in India, the world's largest consumer market of the yellow metal, are placing huge bets on the the price of gold on expectations that prices may rise. However, gold imports are likely to decline as limited budgets buy less gold, the head on India's biggest importing bank reported.  

"They are buying, we talk to jewellers, and they are saying demand is very high. People are planning their wedding purchases in advance because they feel that prices may go to 30,000 (rupees). They are using that to buy," said Sunil Kashyap, head of Asia, Scotia Mocatta told Reuters.

Gold prices have gained more than 25 percent so far, continuing its rising trend for eight years in a row.

India's wedding and festival demand will gain pace and peak in October before tapering off in December.

"People are spending the same, but the amount of gold that they are getting is less," said Kashyap, adding there could a 20 percent decline in imports this year.

India imported 958 tonnes of the yellow metal in 2010.

Scotia is market leader, cornering about 35 percent of India's imports and operates in collaboration with wholesalers across the country.

"The perception right now is gold prices are going higher and because of that people are buying. If price keeps on going and filling that expectation you are going to see continuous demand," said Kashyap in the southern state of Kerala.

However, the risk to continued demand, Scotia said, was "If there is a correction, people may just step aside."

Jewelry demand is likely to witness a revival after a slow pace of growth in the quarter to June. Investment demand grew by a whopping 78 percent to 108.5 tonnes, while jewelry demand slowed by 17 percent to 139.5 tonnes in the second quarter.

"People are buying jewelry as investment, there was a lot of new buyers who were not buying jewelry but buying gold bars and coins, but just in the south people are buying jewelry, so this year we may see some revival in jewelry demand," he said.

CORRECTION KILLS INTEREST IN SILVER

Kashyap said silver imports had shrunk after spectacular sales in the first-half to June, adding prices were likely to fall by 18.5 percent from current levels to $35 an ounce, driven by a slowdown in industrial demand.

Silver prices have corrected 32 percent after peaking at US$49 in late April.

"The fact silver demand is inelastic to price, but here demand itself will not be coming down due to slowdown," he said.

Kashyap feels there is lack of a clear laid out policy in India to boost avenues available to retail gold investors. Conversely, China has allowed a plethora of retail investment products to boost investments such as in the form of gold deposits, certificates and gold accumulation plans.

"The banks here in India have already made representations to the regulator but they have not received any response," he said.


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