As gold prices move higher, there is a clear shift in the way consumers buy it. Traditionally, gold-savvy customers used to buy in grammes on various occasions. For investment, too, orders were placed in grammes. Now, as prices move higher, “an interesting trend is that in contrast to the past, consumers now have a ‘rupee budget’, rather than a ‘weight (gramme) budget”, says Rohini Malkani, economist, Citi India.
Higher prices have done this and also reduced the demand: traditionally, India’s gold demand has been price-elastic. Record-high prices and the global recession, coupled with the drought, have kept away consumers this year. The latest data from the World Gold Council indicate that India’s gold demand was 137.6 tonnes in the third quarter of this year, down 49 per cent compared to the third quarter of last year. Cumulatively, demand in the first nine months of calendar year 2009 was 264 tonnes against 553 tonnes in the same period last year.
Citi says consumers are meeting demand by exchanging old gold ornaments or remaking theaw (which has gone up to 60 per cent of retail turnover in recent quarters, according to the World Gold Council) and shifting to costume/gold-plated jewellery.
The fall in demand has also resulted in lower imports. India’s gold imports have fallen to a decadal low. This has macro economic fallout, as “the decline has implications for the import bill, given that gold accounts for 8 per cent of India’s total imports in value terms. In addition to lower oil, lower gold imports could result in a further narrowing of the trade deficit in FY10”, said Citi’s Malkani.
Imports were just 16.5 tonnes in November, down 51.5 per cent compared to last November. This takes cumulative net imports to just 173 tonnes in January-November ‘09, less than half that imported during the same period last year (417 tonnes), said a Citi report. Trade estimates for gross import are higher.
After a sharp correction of 4.9 per cent in last three days gold prices in Mumbai today closed Rs.275 higher at Rs17,610. Internationally gold was trading around $1,160 an ounce.
