Can Festival Season Save the Gold Market in India? Or Just Low Prices?

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Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner. This is part two of his examination of the gold market in India, which began with yesterday’s post on the current state of gold prices there.

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

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All this may sound like the proverbial doom and gloom scenario for investors, but so far as the Indian economy is concerned, falling gold prices are great news. That, coupled with the drop in coal and oil prices internationally, means a rebooting of the country’s economy, which of late, had been languishing because of political uncertainty and a high external deficit.

The retail end of the gold story is no different from the gold ETFs. There are some who believe that the retail demand will not be largely affected because of traditions like offering gold gifts and using it at auspicious times like the many festivals. But as a form of investment, consumers are increasingly looking at other options than the precious metal.

According to figures released recently by the World Gold Council, the demand for gold in India fell 39 percent from a year earlier in the quarter ended June this year to 204.1 tons. Investment demand which means the buying of gold coins or bars rather than jewelry, dropped even further, losing 67 percent.

Once again, the logic that people only hoard gold during times of uncertainty has been underlined. Now that the Indian economy is on the rebound, and equity and real estate prices are showing an upward trend, people no longer want to invest in gold, analysts say.

Retailers are said to be waiting for plummeting Indian bullion prices to catch up with the falling international rates before they may show some interest in buying gold solely for investment purposes. Some analysts say that barrier would be about US $410 (Rs 25,000/10 gm).

But the festive and wedding seasons (already set in) in India that lasts all the way to the new year is expected to prop up some buying of jewelry at least. India’s monthly gold imports may go up by 50 percent from current levels. Imports are expected to rise to about 70 tons per month in the coming months as against a monthly average of 50-60 tons, according to the India Bullion & Jewellers’ Association.

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