Gold consumption set to touch record 800 tonne

The country's consumption of gold, including jewellry, investment and industrial demand, in 2005 is likely to touch an all-time high of over 800 tonne despite prevailing high prices, according to industry experts and analysts.

The previous all-time high was breached in 1998 with an annual consumption of 740 tonne, according to data provided by the World Gold Council (WGC).

The rise in consumption is driven good buying in the second quarter of the year 2005, over 300 tonnes, said Sanjiv Agarwal, managing director of WGC. This was following prices below Rs 6,000 per 10 grams, especially in May. Demand in the same quarter last year was about 180 tonne.

Currently, prices are around Rs 6,650-6,700 per 10 grams and is hitting buyers hard as festive demand begins. Most festive and marriage buying will come in full swing, after the inauspicious 'sharada' period, which ends on October 4.

The average price for the first half of 2005 was around Rs 6,001 per 10 grams and the average price for the full year was likely to be around Rs 6,250-6,300 (per 10 grams) following high prices expected in the second half, traders said.

Festive buying this year is, however, likely to be hit if such high prices continue. Tuesday, overseas spot gold touched a 17-year high $470.60 per troy ounce, while Comex December gold contract was at a high of $474.90 per troy ounce.

"While the wedding purchases cannot be avoided, incremental buying over the core brings in price senstivity," Agarwal said.

Spot gold price is expected to touch $480/ounce mark by December, according to a report by GFMS Ltd. Prices will continue its northward journey to $500 in the first quarter of 2005, it added.

Analysts are expecting gold prices to take cue from energy prices. Further, dollar prices, which move inversely to those of yellow metal, have of late not been the most telling factor in the latter's movements, said V. Sivaramakrishnan, an analyst with Karvy Commodities.

The rise, internationally, is more a consequence of rising energy prices than festive demand coming in from Asian countries, especially India, the world's largest consumer and importer of the yellow metal. Prices are also seen high in the medium-term following a near stagnation in supply.

According to an Icra study, the gold's global production is likely to decline.

From an expected production of 2,562 tonne in 2005, output is likely to fall by an average of 30 tonne per annum over five years.