India's Gold Demand

Gold imports have sunk to zero, but could the festival of Akshaya Thritiya force a recovery...?

THE GLOBAL ECONOMIC MELTDOWN continues to hurt India's gold imports, reports Commodity Online from Mumbai.

Imports of the yellow metal to India – the largest consumer and importer of gold in the world – are all set plunge in 2009. Last year India's gold imports fell by 45% to touch 450 tonnes. This month Commerzbank International said that India's gold imports will fall below 380 tonnes if the current economic situation continues.

"Given the condition of the Indian economy and plunging gold imports so far this year, I see overall imports below 380 tonnes for 2009," Vishal Patel, sales trader for India and Middle East at Commerzbank International – one of the top sellers of Gold Bullion into India – told Reuters.

Analysts like Patel and the Bombay Bullion Association (BBA) say that for the first time in this decade, gold imports to India have taken a big hit, heading towards zero in March for the second month in a row as BBA president Suresh Hundia told Commodity Online earlier this month.

"March is going to follow February in gold imports," Hundia said. "There will be hardly any gold import this month because of the slump in bullion market thanks to high prices of the yellow metal."

Hundia said Gold Prices ruling near their highs over 15,000 Rupees per 10 gram level is the main deterrent for plunging sales to domestic consumers, and that has resulted in zero gold import to India.

"Gold imports during March are going to be almost zero due to the absence of any demand because of high prices," he explained. "If there is reduction in price, we may witness some imports."

In February, there was no gold imported at all, while the inflow stood at 21 tonnes in March 2008 and at 23 tonnes the month before that.

Hundia said that unless Gold Prices come down to Rs 13,500 per 10 grams level, there will be no demand to support fresh imports, and what demand there is will be satisfied by the growing supply of "scrap" jewelry recycled into the local market.

Gold Prices have so far only declined to Rs 15,200 per 10 grams in India's local Spot Gold markets.

"If the price continues to remain at such high levels, even the coming festive season will not be able to boost demand for the precious metal," Hundia added, pointing to the traditionally very strong gold-buying season of Akshaya Thritiya.

Other Indian analysts say the better performance of local stock market – unchanged since the start of 2009, beating all other major world indices – might also work to pull down local gold demand, as investment money moves into equities. But thanks to international "safe haven" buying, the Gold Price is likely to remain at high level for 4-5 months before coming down to Rs 13,500 per 10 grams, reckons Bonanza Commodity Brokers' assistant vice-president Tarun Satsangi.

The biggest global market for the consumption and import of Gold Bullio, India has now seen more than a 90% plunge in gold imports during January and February year-on-year.

In the last eight years from 2000, gold imports to India every year had been between 400-800 tons. But trade bodies have warned that gold imports this year could collapse to 100 tons if the current trend continues.

"It will not be a surprise if gold imports fall to an all-time low of 100 tons or below in 2009," says bullion analyst Ashish Roy. According to Hundia of the BBA, "Gold and jewellery sector is reeling under a crisis because of high prices and retrenchments across [economic] sectors."

All told, 2009 looks to be the worst year this decade for Indian gold imports. But despite the gloom in gold imports and sales, local bullion traders still hope that the gold market might pick up in the typically stronger April-May season. The World Gold Council has predicted there will be a modest gain in gold purchases in India during the summer wedding season and the Hindu religious festival of Akshaya Thritiya.

"There will be a modest growth of 10-15% in the Indian domestic jewelry business," says K.Shivram, vice-president of the World Gold Council's local office.

Shivram says gold sales will pick between April and June after the dull season of December to February.