Investment demand rises significantly, jewellery demand stays robust.
India’s gold demand is likely to surpass all records this year on an enormous rise in investment demand.
Overall gold demand set a record at 732 tonnes in the pre-economic meltdown year, 2007-08. If the current trend continues and the third-quarter season progresses well, this year’s demand will set a new record, according to Ajay Mitra, managing director, India and Middle East, World Gold Council (WGC).
With the marriage season and festivals like Onam, Dhanteras and Diwali coming, the future seems bright for gold. In the first half (H1) of this calendar year, India’s overall gold demand has risen 94 per cent in volume terms to 365 tonnes, as compared to 188.4 tonnes in the comparable period of the previous year. In value terms, the demand rose 122 per cent to Rs 60,500 crore in H1 of 2010 as against H1 of 2009.
Overall demand was recorded at 182 tonnes in the third quarter of the previous calendar year, when investors were preferring cash to other assets. Considering at least the same level of demand will prevail this year, WGC expects third-quarter demand to surpass this level, taking the cumulative demand for the year to 547 tonnes. This would set the stage for Q4, another peak season, when consumption is expected to take another leap. However, one bad quarter could change the entire sentiment, Mitra cautioned.
Gold jewellery demand in India, the largest jewellery market in the world, was little changed in the second quarter from year-earlier levels, down just two per cent at 123 tonnes. In local currency terms, this translates into a 20 per cent increase in the value of demand to Rs 2,160 crore. When considered in light of the record highs in the local price reached during the quarter, the two per cent tonnage decline suggested that jewellery demand was surprisingly robust, although on a historical basis, second quarter demand is relatively low.
The Akshaya Tritiya festival in the first week of May buoyed jewellery demand, as this is considered a highly auspicious time for buying gold. However, the high price took its toll in June and demand tailed off as consumers preferred to wait for less volatile price.
| SHINING BRIGHT INDIA’S GOLD DEMAND TREND DURING JANUARY TO JUNE | ||||||
| 2009 | 2010 | % Growth | ||||
| Tonnes | Rs crore | Tonnes | Rs crore | Volume | Value | |
| Jewellery | 163 | 23,600 | 272.5 | 45,700 | 67 | 94 |
| Investment | 25.4 | 3,700 | 92.5 | 14,800 | 264 | 300 |
| Total | 188.4 | 27,300 | 365 | 60,500 | 94 | 122 |
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Investment demand
Gold is now seen as an investment-friendly asset class in a turbulent global economic environment, indicates WGC data.
“The current year has, so far, provided a clear indication of the diversity of (demand for) gold. As the year has progressed, the Indian gold market has grown significantly. This has, therefore, ensured that gold retains its intrinsic appeal,” a WGC statement said. The growth in investment demand in H1 this year rose 264 per cent in volume terms to 92.5 tonnes from 25.4 tonnes last year and by 300 per cent to Rs 14,800 crore from Rs 3,700 crore in H1 last year, thanks to skyrocketing prices.
When asked about possible innovations in gold consumption, Mitra said, “Big corporates should take an initiative to partner with the gold automated teller machine (GATM), which was recently introduced in Dubai.” The GATM tenders gold coins of consumers’ choice of denominations when a credit card is punched in the machine. Demand for gold will remain robust during 2010 as a result of accelerating demand from India and China, as well as increasing investment demand, driven by continuing uncertainty over public debt and economic recovery, said Marcus Grubb, managing director, investment, WGC.
Total global gold demand in the second quarter of the current year rose 36 per cent to 1,050 tonnes, largely reflecting robust investment demand compared to the second quarter of 2009. In dollar value terms, demand increased 77 per cent to $40.4 billion.
Investment demand was the strongest performing segment during the second quarter, posting a rise of 118 per cent to 534.4 tonnes compared with 245.4 tonnes in Q2 of 2009. The largest contribution to this rise came from the exchange-traded fund segment of investment demand, which grew 414 per cent to 291.3 tonnes, the second highest quarter on record.
LME gold hits 8-week high
Reuters adds: Gold hit eight-week high near $1,240 an ounce in Europe on Wednesday as the dollar fell versus the euro and as equities slipped on concerns over economic growth, lifting interest in the metal as a safe store of value. Spot gold was bid at $1,237.05 an ounce at 0910 GMT, having earlier touched a high of $1,239.25 against $1,229.25 late in New York on Tuesday. US gold futures for December delivery rose $5.50 an ounce to $1,238.90.
Gold priced in euros and sterling also hit multi-week highs. It benefited from demand for a haven from volatility in assets seen as higher risk, such as stocks and industrial commodities.