The Hindu Business Line : Gold shines as retail investment tool

The unprecedented surge in international oil prices and the weakness exhibited by the dollar have also converted gold as a principal tool of investment.

Kochi Oct. 9

GOLD is no longer confined to jewellery but is becoming a preferred investment tool in India.

Gold consumption in the country scaled to an all-time high of 277 tonnes during the second quarter of 2005, the highest level for any quarter in the country, the World Gold Council has pointed out. Consumption level has peaked even the earlier record set during the first quarter of 1998, immediately after gold imports were liberalised.

The council has listed a new category in gold consumption - retail investment. The second quarter also witnessed a record retail investment at 50 tonnes. This is virtually half the retail investment in gold during the whole of last year.

Retail investment in gold is primarily in the form of bars and biscuits, the council said.

Corresponding with increased gold consumption in the country, there has been increasing activity in gold futures trading and deliveries in the commodity exchanges.

"No doubt gold as a investment tool has been gaining in importance in India in the recent past.

In fact, the National Commodity and Derivatives Exchange Ltd (NCDEX) had record levels in gold delivery of 5,000 kg for May 2005. The volume of trade will be substantially higher," said Mr C.J. George, Managing Director of Geojit Financial Services Ltd.

During 2004, gold consumption in the country was 617 tonnes, of which 517 tonnes was consumed in jewellery and ornaments, while the remaining 100 tonnes went in for retail investment.

On a year-on-year basis, retail investment in gold grew by 79 per cent during the second quarter of 2005.

Given that the busy festive season is yet to start, market sources have expressed surprise at the sudden spurt in consumption during the last quarter.

But the World Gold Council has highlighted that the benign prices and the instability in the value of the dollar in the international markets have been the principal reasons that spurred gold consumption to such record levels.

Other factors include the good and even spread of the monsoons, which has fuelled an increased demand for gold from rural India, as well as greater purchasing power, which has spurred jewellery and ornament purchase from the urban middle class. The unprecedented surge in international oil prices and the weakness exhibited by the dollar have also converted gold as a principal tool of investment.

But many of these conditions were reversed during the third quarter of the current year. The oil prices have slipped, though they continue to remain high in the international market.

The dollar has gained in strength against most international currencies, including the rupee. And gold prices have rallied to higher levels in the Indian markets. All these factors are expected to weigh on the Indian gold trade. But traders still hope that the festive season demand will spur Indian gold consumption to new highs this Diwali.

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