Indian consumers’ affinity towards gold has started declining due to sustained high prices. A survey conducted by 1,600 chief wage earners from middle and high income households by the global independent advisory firm, Morgan Stanley, forecasts gold demand to decline 16 per cent in 2011.
This is in sharp contrast with projections made by the World Gold Council (WGC), a body representing global miners, over a month ago. WGC had estimated the robust growth in India’s gold demand would continue even this year, despite higher prices.
According to a WGC report, gold demand in India had set a new record at 963.1 tonnes last year, rising 66 per cent from the previous year as consumers’ appetite continued for the yellow metal. Ajay Mitra, WGC’s MD, India and Middle East, had forecast that demand would surpass the benchmark 1,000 tonnes in 2011.
“Indian consumers will continue to buy gold even at high prices. Every correction in prices would fetch an opportunity for consumers to book afresh,” Mitra had said, while announcing fourth quarter gold demand recently. Commenting on the implications of the findings, Ridham Desai, head of India research at Morgan Stanley said, “Fall in the demand for gold will have a positive impact on liquidity and deposit growth, and thus for banking sector earnings.”
Noting the high share of gold demand as a percentage of India’s GDP, and given that India imports most of its gold, Desai highlighted that “given these findings, we believe the current account deficit can surprise on the downside with positive implications on growth”.
A recent report by Morgan Stanley said gold currently accounts for 10 per cent of Indian household savings. Private ownership of gold is a whopping $900 billion, while gold consumption accounted for 2.3 per cent of the GDP in 2010.
Meanwhile, gold prices have risen nearly 30 per cent in the last one year from Rs 16,290 per 10 gm on March 26, 2010 to Rs 21,125 per 10 gm on March 3, 2011.
The yellow metal sustained high prices for long. It hit Rs 19,000 per 10 gm on September 1 last year and then moved above this level. Consumers, in turn, await a correction in price assuming the current level is unsustainable.
Bhargav Vaidya, a precious metal analyst with trading firm B N Vaidya & Associates, also contrasted with Morgan Stanley’s view. “High prices will not deter consumers to buy fresh gold in India, as the country has traditionally been a leading buyer of the yellow metal,” he said.
