The Hindu : National : Surge in demand for gold

Online edition of India's National Newspaper
Sunday, Jun 06, 2004

National

National

Surge in demand for gold

By A. Subramani

CHENNAI, JUNE 5. The bullion dealers seem to have a better reason to stand by the NDA's failed poll-eve slogan `India Shining.'

For, the yellow metal added more sheen to its value during the first quarter of this calendar year, when the retail investment in bars and coins soared by a record 47 per cent.

If the statistics supplied by the World Gold Council is any indication, then the consumer demand for gold jewellery in India was up by 25 per cent in tonnage terms, and by 37 per cent in rupee terms in Q1.

India, already the world's largest consumer of gold, has far outstripped the world average in Q1, and Sanjeev Agarwal, managing director of the Council (Indian subcontinent), attributes it to "a surge in consumer and investor confidence in gold despite increase in gold prices during the period."

However, he has a word of caution for the new Government at the Centre.

It must take some positive steps to channel a part of the Rs. 5,000 crores of annual savings being invested in physical bars and coins to be routed through the banking sector in the form of a more efficient savings vehicle.

The general investment demand for gold is attributable to the benefits of stability that investment in gold brings as against the volatile market conditions.

It is also partly due to the investors' tendency to park gains from `bull runs' in a more stable investment asset such as gold.

The Chief Executive of the World Gold Council, James Burton, expressed surprise over the surge in global gold demand as they expected the consumer demand to recede due to a 55 per cent rise in the dollar-gold price. However, he said the Council had decided to play a key role in maintaining the momentum and ensuring that gold jewellery was a "desirable and relevant product for women in our key markets."

Yellow metal dealers believe that the current scenario points to a robust demand for gold and hope that it will remain so, thanks to the wedding season during the entire second quarter of this year.

A positive combination of four factors may be responsible for the ``dramatic rise in gold demand'' in India, if the Council's figures are to be believed.

They are: conducive price levels, a strong economy, the wedding season demand (where gold continues to play a very important role) and the rural consumers, who account for over 60 per cent of the total demand in India, benefiting from the after-effects of 2003's generally good monsoon.

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