The Hindu Business Line : Gold demand sluggish on high global prices, weak rupee: WGC

HIGH international prices and weakening rupee have resulted in sluggish demand for gold jewellery in India in recent months. Although year-to-date, overall demand for gold in the country was 39 per cent higher than in the corresponding period in 2004, the sharp price rise of recent weeks may have hurt jewellery purchases, World Gold Council (WGC) said in its latest report.

Consumer demand in the third quarter was an estimated 143.3 tonnes, marginally up from 140.7 tonnes during the same period in 2004; but jewellery demand was essentially unchanged, confirming the price sensitivity of the Indian market.

However, WGC expressed optimism that the underlying prospects for gold in India remained very good, adding that the economy continued to perform well, promotion was sustained, new jewellery shops were opening and generally the good monsoon boded well for rural incomes in coming months.

In the first half of the year, Indian consumer demand increased by 55 per cent in relation to the first half of 2004. In contrast, steep price rise in September, exacerbated by depreciation of the rupee started to deter purchases.

In addition the exceptionally heavy monsoon rains and flooding in some areas adversely affected demand, the report remarked.

The further price rise in the first week of fourth quarter continued to deter consumers, while Diwali festival, early November, was not a happy time for gold jewellers in most areas, WGC conceded, suggesting that the volatile price both diverted spending to other products and caused some postponement of gold purchases pending the return of what consumers would perceive as a more reasonable price.

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