Inflation Curbing Lust For Gold, Says Wgc

Is gold losing its glitter? Consumption of the precious metal, a fairly accurate indicator of the general prosperity level of the masses, has dropped by eight per cent during the third quarter of the current calendar year.

Gold consumption is seeing a negative growth for the first time in years. The general recession in the economy seems to have caught up with the man on the street as well.

A surge in foodstuff prices, draining the consumer of purchasing power and a rise in the price of gold, in rupee terms, due to the depreciation of the Indian currency and an increase in import tariffs are the reasons for the dip in demand, according to the World Gold Council (WGC).

According to the latest WGC statistics, consumption of the yellow metal in the country dropped to 171.8 tonnes from 189.8 tonnes recorded during the corresponding period in 1997. Consumption during the third quarter of 1997 was incidentally at an all-time high.

What is quite alarming about the eight per cent drop during the third quarter this year is the fact that the festive and marriage season, peak consumption periods, get underway during the last two quarters of the calendar year.

Another point to be borne in mind is that the WGC statistics for 1998 report most of the actual consumption as gold imports have been fully liberalised. However, 1997 statistics may not report the real consumption.

Consequently, WGC's 1998 consumption figures have received an additional fillip as it also includes consumption which was not disclosed last year. Despite this, growth during the third quarter dropped eight per cent. "However, apart from the statistical distortions, economic problems appear to have dampened consumer demand in the third quarter," according to the WGC.

This drop comes in the wake of a strong growth in consumption over the past few years. Between 1994 and 1997, consumption of the precious metal rose from 415.7 tonnes to 737 tonnes. Calendar year 1997 alone saw a whopping 45 per cent growth.

In fact, gold demand had increased by almost a third even during the first-half of the current year. And for the whole of the current calendar year, demand is still up by 19 per cent despite the drop during the third quarter.