India, the largest gold consumer nation, represents the largest share of world’s total jewelry demand (36%) and of world’s total bar and coin investments (22%) in 2010, said World Gold Council (WGC). In 2010 India imported a massive 958 tonnes of gold.
The world watches this giant barometer of gold demand as India arrives at the strong season of gold buying which begins in late August, the end of the monsoon, and in September, the start of religious festivals including Diwali on Oct. 26, marking the auspicious period to buy gold. Wedding season will begin in late October until December when parents will buy gold for the brides. To the nation, gold is not just a symbol of wealth but also an expression of family security and stability.
In Q4 of 2010, WGC reported a surge of 47% in jewelry demand to 210.5 tonnes in India, compared to Q4 in 2009, not only because of the festive season but also the expectation of higher prices, signaling the strength of investment demand. Rajesh Mehta, chairman of Rajesh Exports Ltd. expects purchases of gold jewelry, coins, bars and medallions to climb 25% to 250 metric tons in the three months ending Nov. 30 this year.
Interestingly, the surge in local gold price since July coincided with the 9% weakening of the Indian Rupee to its two-year low against the dollar at 47.925 and the dollar price of Indian gold dropping about 5% from its peak to currently US$579 per 10 grams. The Rupee weakness and higher local price may have hampered gold demand at the beginning of the festivals. However, expectation that local prices could climb to 30,000-32,000 Rupees (US$670) by the end of Diwali has caused some panic buying of gold already in early August. With the long term rising income level of the middle class, the continued external uncertainty and the upcoming festivities, Indian consumers would be expected to buy gold as soon as price stabilizes.
2011 promises to be a bumper gold buying year for Indians once again.
Ross Norman is the owner and chief executive officer of the London-based gold broker Sharps Pixley Ltd.