Retail demand for gold rises

The net retail demand for gold increased by 7 per cent in the third quarter of 2006, even though the total demand for the precious metal fell, according to data released by the World Gold Council. The retail demand went up to 91.6 tonnes, compared to 85.3 tonnes in the third quarter of 2005.

As gold prices shoot up, old gold, known as scrap, comes into the market. This time the supply of scrap has gone down and the third quarter figure is the lowest in the last six quarters at 192 tonnes.

In the second quarter (April to June), scrap supply was at the six quarters highest at 311 tonnes, and in the first quarter it was 298 tonnes. This means people sold old gold when prices were up and the trend may be repeated if gold prices reach $700, as projected by Gold Fields Mineral Services (GFMS).

Import of gold in the third quarter of 2006 went up by 16 per cent. It was 142.4 tonnes in the third quarter of 2005 and 164.8 tonnes in the same quarter of 2006. China's import of the precious metal was also up by 3 per cent. Except this, imports for all other countries were down in the third quarter of 2006, according to GFMS.

In safe hands

For those investors who want to have gold in their investment portfolios and do not want to take the risk of holding or buying physical gold, a gold exchange traded fund (ETF) could be a good option.

Last week, SEBI paved the way for the launch of the first gold exchange traded fund. Now asset management companies and custodians are working on the finer details of the ETF.

Like equity mutual funds, gold ETF will collect money and invest in gold and issue certificates to investors. Investments can be made in denominations of one unit equivalent to one gram of gold.

Uniform price?

India may soon have a uniform spot gold price for the entire country if a proposal of the Bombay Bullion Association (BBA) materialises.

BBA has proposed that the two leading commodity exchanges, MCX and NCDEX, start trade in gold through spot exchanges at BBA benchmark prices throughout the country.

But the proposal is in a preliminary stage of discussion at both exchanges. According to experts, the price variation is mainly because of the difference in demand between the centres.

Although, BBA is hopeful of getting the nod soon, the exchanges look in no hurry to deliver it so easy, perhaps, because of ideological differences between them. Today, prices of all common commodities on the two exchanges differ. Hence, till the regulator really favours uniform prices, the proposal of BBA looks a distant dream.

In case both exchanges reach a common ground with a uniform gold price, India would take the first step towards becoming a price-setter for gold in the long run. If not, then this would be the finest opportunity for BBA to rule the country by setting up a gold specific spot exchange and provide a uniform price for the entire country.