Worried investors chose to dump riskier assets on Monday as a fallout of a cut in the top-notch credit rating for the US and sought shelter in the haven status of gold, sending the metal?s prices to fresh peak.
India, the world?s largest importer of gold and a ravenous consumer, would witness a rise in its imports bill in the medium term, while the value of domestic stocks would surge.
Some analysts, however, reckon that the spiralling prices could slacken demand for gold for a short period, before rising again. Experts say Indian demand will continue to drive global prices, which are expected to hover between $1,728/ounce and $1,750/ounce in the short-term with a support level at $1680 as the US and the European economies continue to totter under debt.
India–which holds the world?s largest gold stocks–accounted for 32% of the global demand in 2010 and bought 963 tonne from overseas to meet the domestic requirement. Indian households alone have around 18,000 tonne of gold in stocks, according to the World Gold Council, which will roughly translate into a reserve in excess of R45,00,000 crore at current prices ? close to the country?s economy size. India?s gold demand has risen 11% in the first quarter of the Calender year 2011, compared with a year earlier.
?Demand for gold in India has witnessed an upward trend since 2010. Gold seems to be one of the safetest investments in the current crisis. It will be fair to say the demand may rise anywhere between 10% and 20% in 2011,? World Gold Council Managing Director (India and Middle East) Ajay Mitra told FE.
Gold prices hit a new record above $1,715 an ounce on Monday, while many commodities, including crude, and share markets fell on persistent apprehensions about a gloomy economic outlook after Standard & Poor?s cut the top-tier credit rating for the US, and European central banks struggled to curb the debt crisis from deepening.
The experts say Indian demand will continue to rise on the global crisis and peak during Diwali in November. ?The gold consumption in India is going to increase as we have a festive season coming in and also the investors in the country are preferring to invest in gold rather than securities and other options. Thus, both consumption and demand will make India play a significant role in the pricing of gold in the times to come,?said Arun Singh, senior economist at Dun and Bradstreet India
?If one looks at gold, there has already been a 20% surge in value terms before Saturday itself, when US ratings were downgraded. So considering the situation now, we expect the prices to be much higher,? Deloitte, Haskins and Sells director Anis Chakravarty said.
However, some experts warn that spiralling prices may slacken demand for a very short period.
?We expect some correction coming in due to slippage in demand but that will happen only if the numbers from US improve….(But) Already there is a huge position (in futures market) built up in the commodity both in India and abroad but we do see a sharp rise on the upside,? said derivative commodity trader Maya Iron Ores chairman Praveen Kumar V. Robust demand from India may support global prices from falling sharply. ?
There is going to be an upside of 5%-15% in the valuation of the commodity