Gold demand in India, the world?s largest consumer, is set to climb during the ongoing festival season despite high prices. This is because the increased appetite for the safe haven asset due to the economic gloom and also the higher income levels. But a depreciation of the rupee will likely limit the rise in demand for gold as imports of the metal become costlier, according to industry executives.
The country will likely import anywhere between 100 tonne and 150 tonne this festival season, compared with around 90 tonne last year, Bombay Bullion Association President Prithviraj Kothari said. ?Although gold prices are still at an elevated level, the recent fall in prices has drawn some buyers who had been waiting for a correction to purchase,? he said. The peak festival season started on Wednesday, with the advent of the Navratri, and will continue until November.
Spot gold prices fell to around R26,940 per 10 gram in Mumbai on Wednesday. Overseas spot gold dipped by $4.21 to $1,644.69 on Wednesday. Gold started advancing at a faster pace since the first week of August as investors sought refuge in its haven status after Standard and Poor?s cut the top-notch credit rating for the US and the debt crisis aggravated in Europe, and has since maintained a volatile movement on uncertainties about the global economy.
However, a more than 8% depreciation of the rupee in September alone has made the precious metal costlier for the Indians and may limit the rise in demand, although purchases will still rise during the festivals, a Delhi-based jeweller said.
?Gold is a compulsory buying during marriages and not an optional one. In some other occasions, too, people consider the purchases auspicious. But yes, had the rupee not fallen so sharply, the demand could have been even higher,? a Mumbai-based trader said.
Bombay Bullion Association?s Kothari said a price range of R25,500 to R26,000 per 10 gram will be a reasonable bet this season although the rupee has weakened. The plentiful showers this year has brightened farm income prospects this year, providing fresh impetus to rural demand for gold, he said, adding that the high inflation level, too, will drive people towards gold as a hedge. Gold has given an average of more than 20% returns in the past four years, reflecting its consistency as a haven asset.
Tradition-bound Indians scale up gold buying during the festival season considering it auspicious, and marriages, too, add to the demand. Around one million marriages are held in the country each year, mostly during this period.
Ajay Mitra, the managing director (India and Middle East) of World Gold Council said although gold prices are still high, people will still buy thinking that the rates will go up further. Indian household have around 18,000 tonne of gold in stocks, according to the Council?s data, which roughly translates into more than $1.1 trillion at the current market price, or around 70% of the country?s economy size.
London-based consultancy GFMS said last month gold prices might touch $2,000 per ounce in 2012 on macro-economic turmoil in the developed world, although projections about the gold price movement have mostly gone haywire due to growing uncertainties about the European debt crisis as well as a rising dollar.