Jewellery drives incremental gold demand

Its share in total demand increases from 62% two years ago to 77%

While investment demand for gold has been sliding, it is jewellery demand that is polishing the story for the metal.

The share of jewellery in total gold demand was 62.8 per cent in 2013, according to the World Gold Council. In the first half of this year, it rose to 77.6 per cent, and has maintained the robust pace.

Demand for gold (bars or coins) has been erratic in recent quarters, depending on the price. For instance, in end-July and early August, prices fell sharply and short-term investors bought gold coins, say jewellers.

Imports in the quarter ended September also rose 25 per cent compared to a year earlier, in the wake of lower prices. However, say experts, this rise in overall demand was led by jewellery.

In the past three years, the price of gold has been closing at a lower level, making gold investment unattractive. Investors have also been encashing investments in exchange traded funds. Whenever prices rise, the first selling is by investors, after which old jewellery comes for melting.

Sudheesh Nambiath, senior analyst at GFMS Thomson Reuters, said: "Given the higher price sensitivity, consumers and investors have been quick in reacting to the fall in prices during July-August. Both at retailers' and consumers' end, there is a growing consensus about the floor in prices, which should keep physical offtake strong at any declines."