The Hindu Business Line : Difficult for gold demand to top 1,000 tonnes this year

Mumbai, Jan. 1 The country’s voracious appetite for gold is well known. Despite rising prices, demand in the first three quarters of 2007 increased; but when the market breached the psychological Rs 10,000 per 10 grams, there was a decline.

What will happen to Indian demand, so crucial for world gold market, in 2008? Some experts predict gold prices will easily exceed $850 an ounce, breach $900 and then move towards $1,000.

Mr Ajay Mitra, Managing Director - India, World Gold Council (WGC) spoke to Business Line on the business ahead for this precious metal.

With the total gold demand recorded at 689.7 tonnes by third quarter, do you think India will have record demand numbers for the year 2007? What arethe demand projections for the last quarter?

Current trends suggest annual demand of 800 tonnes for the year 2007, with about 110 tonnes demand expected for the last quarter.

We were looking at higher numbers near 1,000 tonnes given the strong first half when prices where below Rs 9000 per 10 gm.

But that was dampened because of the price escalation from September onwards.

With the projections of high prices next year, how do you see the impacton demand growth for India?

Will the rupee appreciation come to any aide?

Indian demand to reach 1,000 tonnes this year looks difficult. But factors like appreciation of the rupee to Rs 36 against a dollar or if the country were to go into election mode, that will trigger higher liquidity, much of the funds are expected to flow into buying of gold. If such conditions were to prevail then we can see some record total demand numbers.

How will the jewellery and investment demand unfold next year in view ofvarious factors like the slowing US economy, buoyant stock market?

If the US economy does slow down there will be impact on gold demand from the jewellery industry to the extent of exports to the US. But then jewellers are expected to get aggressive in the domestic market and explore newer markets. Today, despite record imports, the per capita consumption of gold in India is less than one gram.

Generally, a portfolio would be 80:20 equity-gold respectively. Consumers buy gold to hedge their stock market risks, as gold is known survive negative factors in the markets. Thus, if equity exposure goes up, then gold exposure would also go up proportionately to take care of the dips. Investment in gold and stock markets mutually survive. Challenge for us though would be to divert the equity portfolio profits into buying gold (laughs).

With gold prices reaching 27-year high, did the market witness rise in scrap sales? Do you expect higher scrap sales next year on the backdrop of higher prices?

Scrap dealers in Zaveri Baazar have witnessed three-fold sales with the increase in prices. Scrap business works on a good 3 to 4 per cent margin and is mainly metro-centric. But given that the bullion sector in India is highly unorganised it is difficult to get exact numbers. However, scrap volumes range from 150-200 tonnes depending on volatility and price levels. If prices where to go still higher Indians may decide to sell for profit. After all, they are in possession of a good 15,000 tonnes of physical gold.

What promotion events are planned for the next year?

We are seeking to set a trend of 18-carat fashion accessories. This will enhance the image of gold and appeal to the fashion hungry urban youth. We have already tied up with Tanishq and other jewellery designers and we want to propagate this through the trendsetters Page 3-ites. The project would be launched in April.

We also did a pilot project with SBI for sale of gold coins involving 100 branches.The bank will rope in about 1000 branches for the sale of gold coins in six months time. We are planning to do a project with the Indian Postal Services for sale of gold coins through postal outlets. We have an in-principle agreement and now have to get the necessary permissions. Thereafter, WGC will facilitate the postal authorities to tie with authorised bank to procure gold.

What is the tune of investment for promotions?

There is an investment pool in which the WGC and its partners from the industry contribute towards. The pool is about Rs 71 crore this year which would double in next three years. The share of WGC is 30 per cent while the rest 70 per cent is from our partners and is mostly spent on jewellery promotions.

By the end of this decade any significant scheme you see materialising for investment in gold?

All along our focus had been on promotion of gold through jewellery. Now, we are seeking to make it more broad-based taking in investment products linked to gold. We propose to run a Gold Certificate Scheme similar to the National Savings Scheme. The corpus of the Scheme would be invested in the gold bond market in one of the developed markets like that of London, as currently there is no such market here. Even as we speak an appointment is being sought with the Reserve Bank of India for discussing the proposal withthe regulatory body.

Are there expectations of gold being used as an industrial metal in India?

Current consumption by the dental and healthcare industry is about 5 tonnes. WGC London has engaged in a pilot project with a major global auto manufacturer, to use an autocatalyst developed by California based Nanostellar. This catalyst material made with the use of gold will enable manufacturers of diesel engines to reduce noxious emissions by as much as 40 per cent. Once this is done, we will rope in some of the local majors like the Tata or Leyland for adoption of the technology. This will set a new industrial demand for the preciousmetal.

Hallmarking of jewellery has been protested by the jewellers across the nation. What do you think would be the outcome?

The question is not whether it will happen but the scale at which itwill happen. Though initially it may be restricted and may only take of in some cities. But in the absence of hallmarking there will only be further erosion of the business, loss of consumer faith, which will eventually blow up on their face. Consumer groups will question why would the jewellery community shy away from hallmarking.

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