Demand for gold ETF may double: WGC

Investments in gold via Exchange Traded Funds ETF are likely to double this year from 15 tonnes in 2011 on the back of robust demand,World Gold Council said today.

While the US is the biggest ETF market is the world,Indian gold ETF market is 8220;considered the largest in Asia8221; according to WGC.

8220;The investment demand for gold under Exchange Traded Funds continues to be very very strong. In future,the total tonnes of gold investments made under ETF in India may double,8221; WGC Managing Director India and Middle Eastern region Ajay Mitra told reporters here.

The gold ETF market in India in 2007 was just five tonnes and rose to 15 tonnes in 2011. It 8220;may double this year,8221; he added.

Gold ETFs,commonly referred as 8216;paper gold8217;,are mutual fund units issued by asset management companies against 99.5 per cent purity physical gold deposits.

Quoting AUM Asset Under Management figures,Mitra said gold investment demand which was Rs 3,581 crore in January 2011 soared to Rs 4,800 crore in April 2011. This year,it stood at Rs 9,614 crore in January and rose to up to Rs 10,218 crore in April 2012.

8220;There is a robustness in investment demand. People largely prefer investing in ETFs,given its convenience,8221; Mitra said.

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India8217;s total gold demand in 2011 was 963 tonnes,he said,adding that one of the major factors of people investing in gold ETFs is low inventory costs.

He added that some jewellers have Demat account and people can also use their ETFs to purchase gold,which is convenient.

On industry trends,he said there was a 3 per cent decline in demand during January-March 2012 at Rs 56,650 crore,compared to Rs 58,630 crore in the year-ago period.

In volume terms,he said it slipped to 207.6 tonnes in January-March 2012,from 290.6 tonnes in same period of 2011.

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He said some of the reasons for the 8220;softening8221; of the industry included falling inventories,levying of excise duty for gold,leading to confusion in the industry and 8220;poor consumer confidence and sentiment8221;.

Mitra said this trend may continue for the next two quarters and is expected to pick up in the fourth quarter.

8220;There is a cautious approach among consumers given the prevailing economic conditions. We see the demand softening in the next two-three quarters. We expect it to pickup during the festive season later this year,8221; he said.

Mitra said gold demand had slipped globally by 4.61 per cent from 1,150.7 tonnes in the first quarter of 2011 to 1,097.6 tonnes in the first quarter of 2012. However,in value terms,demand saw a 16 per cent increase year-on-year.