The steep rise in gold prices is changing the bullion market dynamics in India. Imports of gold are at a standstill as people now prefer to sell their jewellery and coins to take advantage of soaring world prices for the precious metal.
India,the worlds largest gold consumer,normally imports 90 per cent of its gold needs. But in January,even with the wedding season a time of lavish gold gift-giving in full swing,it imported just 1.8 tonnes,down from 14 tonnes a year earlier,the Bombay Bullion Association said.
In February,imports are virtually at a standstill as people are selling their old gold to take advantage of higher prices,market circles said. This has come on top of a 14 per cent drop last year in gold imports to 660 tonnes down from usual annual import levels of 700 to 800 tonnes as higher gold prices and volatility hurt demand,the World Gold Council said.
The combination of golds safe haven appeal and extreme uncertainty surrounding other asset classes should see consumers continue to take advantage of any dips in the price (in 2009), the WGC said in its review. Indias net retail investment in gold slipped to 190.5 tonnes from 217.5 tonnes in 2007.
Gold continued its record-breaking surge during the week gone by and scaled a new peak of Rs 15,790 on the bullion market thanks to its rising appeal among investors as a safe asset. It finally closed at Rs 15,745 per 10 grams. Gold futures price has already crossed Rs 16,000 now.
At the current level,gold prices have soared by nearly 28 per cent in the last one year from around Rs 12,325 in February last year.
Prices in India are influenced by global prices which have already crossed the $1,000-mark per ounce. There are no signs of global prices undergoing a correction in the near future as economic slowdown is deepening in developed markets. Global governments are lowering interest rates and spending trillions of dollars to combat the recession,spurring investors to buy bullion as a hedge against inflation. Demand has pushed gold holding in exchange-traded funds to records, said an analyst.
Meanwhile,the situation is different in China where demand for gold as investment nearly tripled in 2008,and could rise further this year as investors sought safety from financial market turmoil. China,the worlds second-largest gold consumer after India,consumed 395.6 tonnes of bullion in 2008 for jewellery and investment,or around 14 per cent of global demand,up from 327.8 tonnes in 2007,according to the World Gold Council. Investment demand in China jumped to 68.9 tonnes last year from 25.6 tonnes in 2007.