Buying power likely to propel gold demand: SBI

Gold demand in India, the world's biggest consumer, may climb by as much as 10 per cent a year as rising incomes in the Asian powerhouse spur jewellery purchases, State Bank of India Chairman O P Bhatt said.

State Bank of India (SBI), the nation's biggest lender by assets, plans to raise Rs 200 crore ($51 million) selling securities backed by gold to tap rising demand among individual investors to trade commodities, Bhatt said.

The exchange-traded fund will be launched early next year by SBI Funds Management, a group company, he said.

SBI plans to allow temples and other depositors to exchange their gold for interest-bearing bonds, Bhatt said. Households in India have about 15,000 tonnes of gold worth more than $200 billion locked away in family vaults, according to McKinsey & Co.

"The temples and trusts can deposit gold with us. We will llgive them an incentive and gold can be recycled,'' Bhatt said at an industry conference organised by the London Bullion Market Association in Mumbai today. Investors can trade gold through exchange-traded funds without having to take delivery of the precious metal.

The gold fall
Gold has climbed 24 percent this year and approached the $850 an ounce peak on Nov. 7 as investors bought the precious metal as an alternative asset to the dollar and as a haven in times of record oil prices and financial turmoil. Gold may decline as low as $770 an ounce next year.

"Gold may decline as low as $770 an ounce next year." Bhatt said, adding, "The upsurge was because of the crisis in the currency and financial markets. However, prices are stabilising. The upsurge was overdone."

Bullion gained $7.62, or 1 per cent, to $793.92 an ounce and traded at $789.31 at 12 pm in Mumbai. Gold traded as low as $783.40 an ounce on November 15, having reached a 27-year high of $845.84 on the seventh of the month.