Indian gold traders are reporting surprising demand for the precious metal, despite its recent jump in price to a record-breaking high exceeding 26,000 rupees per 10 grams.
Healthy sale volumes are being driven not so much by shoppers preparing for the October-to-December wedding and Hindu festival season, but by a keen class of investors who view the metal as a hedge against currency fluctuations, political instability and the economic uncertainty engulfing global financial markets.
The price of 10gm of gold hit a record peak of 26,395 rupees this week but in spite of that, sustained "healthy" demand is expected - particularly for jewellery - in key markets such as India and China, says the World Gold Council (WGC), an industry body.
The Bombay Bullion Association, which comprises bullion dealers from the wholesale gold market, says demand at this time of the year typically falls by 30 to 40 per cent. But amid global economic slowdown concerns, investors are exuding confidence in gold, hailing it as one of the rare commodities unlikely to undergo deflation, says Rajesh Mehta, the chairman of Rajesh Exports, a leading Indian exporter and wholesaler of gold jewellery.
Tanishq, a leading jewellery store chain offering a collection of diamond and 18 and 20-carat gold sets, expects a double-digit jump in sales this fiscal year ending next March 31.
Tanishq says its sales turnover is expected to cross 70 billion rupees (Dh5.64bn), up from 55bn rupees in the previous fiscal year.
The brand operates 127 stores across 76 Indian cities, and plans to add 15 to 20 more by the end of the year, says CK Venkataraman, Tanishq's chief operating officer.
India, the world's largest consumer of gold, accounts for one fifth of global demand. WGC says the country imported 957 tonnes last year. Imports for the first half of this year stood at 540 tonnes, up 21 per cent from the same period last year.
About 18,000 tonnes of gold jewellery worth $800bn is hoarded in India's private family vaults, according to the WGC. That is almost double the gold reserves maintained by the US Federal Reserve.
For the quarter that ended on December 31, India's gold jewellery demand rose 47 per cent to 210.5 tonnes from the same period last year, the WGC says.
Across rural India, home to 70 per cent of the country's population and where banking penetration is low, people often prefer to convert their savings into gold as an insurance against inflationary devaluation.
"The role of gold has changed from a commodity to a monetised asset that encourages consumers to invest in the precious metal," says Ajay Mitra, the managing director of the WGC in India.
Inflation-hit Chinese aim to preserve wealth
China’s gold investment demand surged 44 per cent in the second quarter from the same period a year ago, as rising inflation boosted the metal’s appeal as a haven asset amid a lack of other investment options.
Purchases of gold coins and bars in China climbed to 53 tonnes in the three months to June 30, the World Gold Council said yesterday. That was the second largest after India, according to the council, slipping from the number one position in the first quarter.
“The second quarter is usually China’s quiet season in terms of gold sales,” said Liu Xu, an analyst at Capital Futures Company. “But a lacklustre performance in the local equity market, government restrictions on property investments and rising inflation in the second quarter meant that investors had little choice but to look to gold for wealth preservation.”
Demand in China may exceed consumption in India by the end of this year, said Chuck Jeannes, the chief executive officer of Goldcorp, the world’s number two producer of the metal by market value.
Consumers in China are buying larger amounts as an inflation hedge, Mr Jeannes said last month.
With the world in a pickle, Americans seek safety
Welcome to the new American gold rush. The price of gold is on a remarkable run, setting a record seemingly every other day. Stomach-churning volatility in the stock market has only made investors covet gold more.
“Is gold the next bubble?” asks Bill DiRocco, a golf company manager in Overland Park, Kansas, who shifted 10 per cent of his portfolio this year into an investment fund that tracks the price of gold.
In October 2007, it sold for about US$740 an ounce. A little over a year later, it rose above $1,000 for the first time. In March, it began rocketing up. And yesterday it reached $1,826.
The last time gold prices rose so precipitously was a few years after former US president Richard Nixon ended a fixed relationship between the value of the dollar and the value of gold.
Nixon “closed the gold window”, essentially saying that confidence in the US government, not gold, gave the dollar its value. As inflation worsened later in the 1970s and dollars were worth less, the price of gold took off. The previous price hit its high in 1980 – $850 an ounce, or more than $2,300 in today’s dollars.
“Gold is the reciprocal of the world’s faith in the world’s central banks,” said Jim Grant the editor of Grant’s Interest Rate Observer, and right now, “the world is in a pickle”.
Venezuela bringing back $11bn in reserves
Hugo Chavez, the Venezuelan president, ordered the central bank to repatriate US$11 billion (Dh40.4bn) of gold reserves held in developed nations’ institutions such as the Bank of England as the metal rises to record levels behind a weakening US dollar.
Venezuela, which holds 211 tonnes of its 365 tonnes of gold reserves in US, European, Canadian and Swiss institutions, will return the bars to the central bank’s vault, Mr Chavez said on Wednesday. JPMorgan Chase, Barclays, Standard Chartered and the Bank of Nova Scotia also hold Venezuelan gold, the president said.
“We’ve held 99 tonnes of gold at the Bank of England since 1980. I agree with bringing that home,” Mr Chavez said on state television. “It’s a healthy decision.”
Mr Chavez, whose government depends on oil for 95 per cent of its export revenue, is looking to diversify Venezuela’s cash reserves from US and European banks to include investments in emerging markets, said Nelson Merentes, the central bank president.
Venezuela is the world’s 15th-largest holder of gold and the reserves are returning after a 26 per cent rally in price this year. They stood at $28.6bn on Wednesday.
* with Bloomberg News
* with AP and Bloomberg News
