Business Standard

India's Q1 gold demand melted 84% on global slowdown

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India’s demand fell 83 per cent in the first quarter of the present calendar year, thanks to the global economic meltdown which had affected consumer spending on luxury products including precious jewellery items.

According to data released on Wednesday by the World Gold Council (WGC), an organisation founded by world’s major gold mining companies to promote the yellow metal’s sales, gold demand in India slipped to 17.7 tonnes compared to 107.2 tonnes during the corresponding quarter last year. This is the second straight first quarter decline.

During the first quarter of calendar year 2007, India’s gold demand stood at 202.2 tonnes. But, the World Gold Council (WGC) is hopeful of a revival in demand in the fourth quarter of the present calendar year.

Demand for gold jewellery was hit by a combination of record local prices and deteriorating global - and increasingly, domestic - economic environment. Jewellery sales in India surged 34.7 tonnes while retail investors reduced their holding to the tune of 17 tonnes thus squaring the total demand to 17.7 tonnes in the quarter.

Ajay Mitra, managing director — Indian sub-continent, WGC, told Business Standard, “Retail investors who sold gold holdings during the economic crisis to partly offset their stock market losses, are expected to return to the market by the end of this year as both equity and currency markets have shown some signs of recovery.”

Attributing the decline to the falling consumer sentiment because of the global financial crisis, Mitra said buyers do not bother much about higher prices. Once the financial markets recover, consumer sentiment will change and then, profound buying would be seen. But, this would take at least two quarters to happen, he added.

Traditionally, India has been the world’s largest gold market, and any fall in demand is a matter of great concern. The overall demand cannot be gauged from the performance during the first quarter. Being the last quarter of the financial year, traders focus on balancing their books rather then fresh investments. Therefore, the demand was low in the first quarter of the last two years. But, it would recover, said Ashok Minawala, past president of the All India Gems & Jewellery Trade Federation.

Globally, however, fears of inflation in future and the ongoing financial uncertainty saw investors flocking to gold in the first quarter of 2009, seeking its proven wealth preservation qualities. The total demand for gold during the period under consideration rose 38 per cent year-on-year to 1,016 tonnes, representing a 36 per cent rise in value terms to $29.7 billion.

Identifiable investment demand for gold, which includes exchange traded funds (ETFs), and bars and coins, were the major source of growth during the quarter, reaching 596 tonnes, up 248 per cent from the corresponding quarter last year.

Net retail investment (total bar and coin demand) remained highly robust, rising 33 per cent y-o-y to 131 tonnes, despite some bar and coin dishoarding in the eastern markets as investors booked profits. Germany was the single biggest bar and coin market during the quarter where demand rose 400 per cent to 59 tonnes, with inflation concerns being a key buying motivator.

Switzerland was the second largest bar and coin market, up 437 per cent to 39 tonnes, followed by the US, rising 216 per cent to 27.4 tonnes.

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