Gold falling as Indian demand may drop 53% in 2012

In The Lead: “See PM Tallies As Seen By CPM”

Less than one month from now India will be in the midst of the second most auspicious gold buying period of the year — Akshaya Tritiya. India’s gold intake is estimated to constitute 32% of global gold demand by the World Gold Council while the CPM Group figures that the country accounts for 12% of gold fabrication demand in the world. A recently conducted survey by Reuters, reveals that the President of the Bombay Bullion Association has projected that 2012’s Indian gold imports could fall to 450 metric tonnes, down 53% compared to the putative 969 metric tonnes that may have been imported last year.

Speaking of significant market statistics, yesterday, the CPM Group’s Gold Yearbook 2012 was released in New York. We will cover the important supply/demand metrics contained in this important publication in-depth in coming articles. For the moment, let’s mention a few unsurprising but perhaps – to some – still eyebrow-raising facts about the gold market as tallied in 2011. For starters, the finding that gold investment demand fell by nearly 6% last year, at a time when we were all told (by certain agenda-driven newsletters) that investors were beating down the door of their nearest coin shop. Evidently, that was not the case.

We mentioned numerous times in these posts that record and/or near-record gold prices present an obstacle that many an investors is basically unwilling to tackle. CPM’s analysts found that “Such investor hesitance also was seen in gold coin buying patterns over the course of 2011, in Indian demand trends, and in other aspects of the gold investment market.” The research firm believes that investment holding additions will also decline in 2012-if not by much-and that while no major declines in the price of the yellow metal are in the cards this year, neither are new records.

The firm anticipates a possible trading range in gold of from $1400 to $1,900-and-change for the year. This, despite the incessant chants by mining firm CEOs that $2K and $2.5K gold are ‘in the bag.’ Note that high gold prices do matter and that “Investors as a result appear already to be reconsidering purchasing increased amounts of gold at ever higher prices as they have been doing over the past few years. They are instead showing signs of being increasingly willing to hold off on purchasing metal until prices soften from recent levels, a tendency that may continue in 2012 and beyond.

CPM also busted certain other myths that are present in abundance in the gold market newsletter space. One of them relates to gold as an inflation hedge. Aside from the fact that CPM noted that gold is a currency and that all currencies lose value over the long-term and that therefore gold’s purchasing power parity attribute is largely fiction, the firm also pointed out that investors may be placing their bets incorrectly when it comes to gold.

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