Will India regain its appetite for Gold Bullion as Western investors push the price higher...?
Have Indians lost their appetite – and ability – for jewelry and safe-haven investing thanks to rising food prices, inflation, frequent bomb blasts, interest-rate hikes and zooming oil prices?
It might look so if some recent trends are to be believed. But is that the real picture?
Earlier this year, traders and key gold-industry bodies like the Bombay Bullion Association had predicted that the consumption of gold in India during 2008 would touch a record 900 tonnes. But it is unlikely that Indians will buy that much Gold this year.
The main reason? The zooming price tag of the yellow metal is driving away customers from jewelry shops. Traders and shop owners all agree.
"Yes, less and less people are coming to Buy Gold these days because Gold Prices have gone through the roof," says Arun Kumar, owner of Kerala Jewellers in Kochi, one of the nerve centers of the retail gold business in India.
He says his retail business has always been led by middle class people who Buy Gold in preparation for their daughters' marriages. But "these days, parents are gifting flats and cars to grooms. Not gold," Kumar says.
Traditionally, gold demand peaks in India during the second half-year during religious festivals and the wedding season. Over the coming few months, Indians will celebrate festivals like Onam and Diwali. "These were festivals when people Buy Gold. But I doubt whether we will have good sales this year because of high prices," says Kumar.
On Tuesday, however, and as local Gold Prices flipped around the apparently crucial mark of 13,000 Rupees per 10 grams, brisk buying was reported by stockists and jewelers alike. Standard gold and ornaments surged by Rs 95 per 10 grams. Investment gold rose Rs 25 to Rs 10,650 per eight grams.
Several leading consultants meantime remain bullish on gold. Global metals consultancy GFMS had said that gold purchases in India are booming in the wake of rising jewelry demand, thanks to the decline of US Dollar and lower Price Volatility for Indian Gold Buyers. India is the largest consumer of the yellow metal in the world.
India currently consumes anywhere between 600 to 700 tonnes of gold worth $6-7 billion annually. But domestic production of newly-mined gold is only about 2 tonnes per annum.
Reports of falling Indian jewelry demand also come in stark contrast to the Western gold investment markets, where the Gold Exchange-Traded Funds (gold ETFs) have seen a combination of continuing instability in the equities markets, ongoing fears over the Dollar and rising inflation spur new demand. An increased understanding of gold's investment attributes also helped grow Gold ETF sales by 100% during the first quarter of 2008 compared with Q1 2007, says the World Gold Council, hitting 73 tonnes for the quarter "and representing $2.2 billion in dollar terms."
The price of Gold has been rising for over six years. It gained 200% in the last six years. That works out to more than 30% per annum, which has consistently been better than most other markets. Global commodity companies, however, believe that Gold Prices will rise for years to come.
The moot question is: Will India continue to be the largest consumer of Gold – continuing to outpace anxious investors in the West – if the price of the yellow metal continues to zoom this way...?