Unthinkable? In India, Gold is No Longer All That Glitters

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In the last few months, something has happened in India that many thought would never be even near-possible; the appetite for gold as an investment has dropped.

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The size of the nation’s investment in bullion has registered a decline due to the falling prices of the yellow metal in the international market. It’s been about a year now that Indian prices have been sliding, leaving customers watching from the sidelines as the gold that they had bought at price-levels of over US $500 (Rs 30,000 retail), was now valued for far less at about US $440.

India is the second largest buyer of gold, after China, in the world. Clearly, the price fall has shaken the faith of customers. Exactly a year ago, the yellow metal had touched its nadir so far at about US $575 (Rs 35,074) per ten grams. After that, it’s been downhill all the way, due to the strengthening of the Indian rupee and the US dollar in the currency market, and also due to weak overseas demand. From about US $524 (Rs 32,001/10g) in October 2013, gold prices fell to a low of about US $440 (Rs 26,900/10g) in June 2014, a decline of 16 percent. Currently, it is being traded at about US $443 (Rs 27,450/10g).

Forget hoarding of physical gold, investors are buying out from gold Exchange Traded Funds (ETFs), too. The latter were quite popular as an investment tool from 2008 onwards,but that’s an old story now. With India’s economy being steered back on track, the stock markets have bounced back so equity, and not gold, is the preferred investment instrument in India these days.

The gold ETF investor base started losing about a fifth of the total number of portfolios in May 2013, when the number had touched a high of 605,000 investors. Today, this segment has only a relatively paltry 480,000 portfolios.

Analysts here predict Indian demand will fall by a further 13 percent to 850 metric tons this year, the lowest level since 2009 if the global scenario does not quickly improve.

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

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