INDIAN Gold Investment demand has "exploded" this year, according to an analyst at a leading precious metals consultancy.
Gold Investment demand – which includes demand for Gold Bars and Gold Coins – could soon overtake that for gold jewelry in India as it responds to climate of low interest rates and high inflation.
"If you look at interest rates, in real terms they are still negative," says Gargi Shah, metals analyst at GFMS.
"So investors will definitely look at gold...investment demand has literally exploded."
Data published by the World Gold Council show Indian Gold Investment demand at nearly 78% of gold jewelry demand in the second quarter of the year – up from 51% for the same period in 2010.
"Gold has come a long way from being a jewelry item to an alternative currency," says Gnanasekar Thiagarajan of Commtrendz Research, a commodity futures and foreign exchange advisors.
"Investment demand could surpass jewelry demand in the next two to three years."
The rise in Gold Investment demand has led to changes on the supply side of the market.
Gold Bullion dealer RiddiSiddhi Bullions – which primarily deals with jewelers – has begun selling Gold Bars (or petlas) weighing one-tenth of gram, while Shree Ganesh Jewellery of Kolkata sells Gold Coins weighing half a gram.
One jeweler reports that the costs of producing a small Gold Investment bar are around a third those of producing gold jewelry of similar weight.
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