Home Economy Gold demand picks up as prices stabilise

Gold demand picks up as prices stabilise

By Arjun Sen, IANS,

New Delhi/Kolkata/Chennai : With gold prices remaining more or less stable at lower levels, the demand for the yellow metal in India, the world’s largest gold market, has begun to pick up, traders said.

“As the gold price has dipped, demand has increased in the domestic market,” Pankaj Parekh, regional chairman of the Gem and Jewellery Export Promotion Council told IANS in Kolkata.

“Export of gold is also picking up,” he said.

This vindicates the optimism expressed by the World Gold Council (WGC) in its latest report on gold demand and supply trends.

“There is some optimism that the upcoming Diwali festival and the second wedding season later in the year will provide a degree of respite to the decline in jewellery consumption,” the report said.

In volume terms, the demand for jewellery declined sharply in the second quarter this year. India saw the largest decline in jewellery demand, which fell 47 percent to 118 tonnes, the report added.

In India, retail investment demand too followed the same trend falling 41 percent to 43.4 tonnes, as investors were deterred by price volatility and inflation reduced funds available for saving, it said.

But there was heavy demand from retailers after gold prices hit a multi-month low Aug 16 this year.

This pushed up prices during the week by about Rs.30-40 per gram and created fears of stocks running out.

“Supply was bad during the week compared to demand, which was high as the price has dipped,” Parekh said.

Added Anantha Padmanaban, a partner at one of Chennai’s largest jewellers, Nathella Anjaneyulu Chetty: “Although business has come down compared to what we saw during the past 15 days, sales are now up to usual levels.” said.

“Though there was no stock-outs, the supply position is still a bit worrisome as banks are yet to start supplying gold,” Padmanabhan said.

He is, however confident that stocks would not run out again.

Throughout the first six months of the current year, gold prices ruled high, peaking at Rs.13,567 (US Dollars 313.180) per 10 gram mid-July.

Prices have been falling ever since – initially gradually, and then very sharply during last week – to go below $800 per ounce (28.35 grams) in global markets for the first time since last December.

Although prices have again picked up somewhat on higher demand and a bounce-back in crude oil prices, market analysts such as John Reade of UBS Investment Bank, London, expect gold prices to go down further in the coming days.

“At $870, we consider gold to be about $150-200 above fair value, by which we mean the level at which jewellery demand would support – and the scrap supply would stop pressuring – the gold price,” he forecast at the beginning of this year in Forecast 2008, published by the London Bullion Market Association (LBMA).

Reade, who was awarded by LBMA for his 2007 forecast as it came closest to actual prices, said gold prices would go down to as low as $700 in 2008.

Agreeing with Reade’s forecast, WGC-India vice-president Shivram Kumar told IANS in Chennai that gold prices could come down to at least around $780 per ounce.

“In India, we expect gold demand to recover from the setbacks earlier this year due to high price and the resultant fall in sales,” Kumar said.

According to Padmanabhan, while the volatility in gold prices remained a worry, silver provided the proverbial silver lining.

“Though the metal has come down to Rs.21,000 band from Rs.28,000 earlier, I feel it is a good buy as it is likely to go up to Rs.35,000 next year,” he said.

(With inputs from V. Jagannathan in Chennai and Aparajita Gupta in Kolkata)