The Hindu Business Line : Q1 gold demand surges by 50%

Chennai/Mumbai May 17 A volatile stock market, increasing disposable income and a younger generation looking for designer jewellery have all contributed to a surge in demand for gold during the first quarter of this year by 50 per cent.

According to the World Gold Council (WGC), consumer demand in the country touched 211 tonnes, six tonnes short of the previous first record in 2001, when gold was priced 50 per cent lower.

Steady Prices

An interesting aspect of the demand is that investment of gold increased 64 per cent year-on-year, while quarter-on-quarter it increased 14 per cent to 64 tonnes.

On the other hand, demand for jewellery witnessed a fall of four tonnes from the fourth quarter of 2006 to 147 tonnes.

One reason for the rise in demand during the first quarter was that Indian consumers seemed to be comfortable with the $650-an-ounce price for gold.

In the domestic market, gold had been ruling in the Rs 9,000-9,500 range during the period.

"During the first quarter, the prices were much more stable and the demand was pretty much in line with the normal trends," said Mr Keyur Shah, Associate Director, World Gold Council. On higher demand for jewellery in the fourth quarter of 2006, he said it was due to a built up latent demand in view of higher prices during the first half. Steady prices during Diwali resulted in consumers buying the yellow metal.

Stock Market

According to Mr Sahil Kapoor, analyst with Kotak Commodities Services Ltd, a strong rural demand was behind the demand surge. "Also, commodities markets have opened up in the country and people are up to date with the prices," he said.

Besides, increasing disposable income was luring youngsters to go in for designer jewellery. "At least 50 per cent of those employed currently are less than 25 years old. They are buying the latest designs in gold jewellery," Mr Kapoor said.

A volatile stock market also helped gold demand gain. "This (stock market volatility) definitely helped consumers to view gold as a safe investment option and a good portfolio diversifier. Gold has always given reasonable returns to investors but this return becomes very relevant to the consumer during troubled times witnessed in other investment avenues," he said.

"Theoretically, the volatile stock market has helped demand surge," Mr Kapoor said.

Robust Demand

Mr Kapoor and Mr Shah also said the appreciation of the rupee against the dollar also helped in offsetting some volatility in the global market.

According to WGC, good times of the first quarter of 2007 in the gold market are likely to continue into the second quarter because of sustained demand for jewellery and consumers getting used to high prices.

The second quarter outlook is rated positive. This follows robust demand during the recent Akshaya Thrithiya festival in India and far from waning requirement of consumers despite high prices. These are seen as pointers to strong demand conditions in the second quarter provided there is no excessive price volatility.

Investment Vehicles

While the overall prospects for investment continue to be positive, there is a note of caution that short-term market movements can be unpredictable. A number of underlying political and economic factors (geo political uncertainties, inflation) continue to remain broadly supportive.

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