The Hindu Business Line : Bullion demand may continue to be under pressure

WHILE high prices are known to affect demand adversely, the Indian market seems to have been able to adjust to higher prices of gold and silver in recent months thanks to strong economic fundamentals and agricultural growth driving rural incomes, according to experts.

"It is difficult to predict the future price movements in India as the precious metals follow international trends. Indian demand is sensitive to price, but demand emerges as prices stabilise," said Mr Madhusudan Daga and Mr Sanjiv Arole in their annual bullion market review.

In their prognosis for 2004, the authors pointed out that gold would have to live with competition from a host of products and services including real estate, stock market, consumer durables, education and even tourism as well as studded jewellery and fashion jewellery, all of which could curtail demand. High and volatile prices could take the sheen out of bullion.

According to the report, at the top end of the market, increase in demand for diamond jewellery could impact demand for gold, while the lowest income groups could be the new consumers of silver. There will however be a large number graduating from silver to gold.

Referring to silver and its scaling the record price of over Rs 12,000 a kg in the first quarter of 2004, Mr Daga and Mr Arole said the key factors to look out for in the remainder of the year were the reforms in the Indian bullion market, economic growth and the all important monsoon.

Pointing out that high and volatile prices could hurt domestic demand, the experts suggested silver exports might be permitted when the new Government assumes office. Such a move would encourage scrap sales.

In 2003, gold averaged Rs 5,616 per 10 gm. The yellow metal opened the year at Rs 5,620, reached the high at Rs 6,210, tested the low of Rs 5,060 and closed at Rs 6,210.

Silver, on the other hand, averaged Rs 8,129 per kg in 2003. It opened at Rs 8,065, reached the high at Rs 9,575, touched the low of Rs 7,620 and closed at Rs 9,575.