Gold demand during Indian festival season not strong as expected

The Indian festival season (read peak Gold demand) is finally in its last stages, easing in onto the Chinese new year which is expected to further support the gold price. But has the gold demand during the festival season been as strong as analysts expected? It doesn’t seem so.

High prices have kept buyers at a distance- volume wise. Even though people still bought gold, its expensiveness has offset any large scale purchases that most families traditionally make during the season.

-Gold prices have surged from around Rs 21000/10 gm to Rs 28500 in Indian markets, an appreciation of close to 35%! And this even when international gold prices are almost 10% still below their all time highs. So why is Gold in India costlier?

The answer lies in the currency. Rupee has appreciated strongly against the dollar. In the first 8 months of 2011, Rupee had been range bound in the 44-46 area. But then broke through and zoomed to 52. Rupee rose by more than 12% in less than 4 months!

And since gold is a dollar denominated commodity, stronger rupee not only offset the price decline in International markets, it actually made gold more expensive in India. And expensive equates to “stay away” as far as the Indian consumer is concerned.

The traditional buyers have mostly made purchases only to honour the tradition. And whatever genuine interest is seen may possibly be due to investment buying on the back of economic fears.

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Posted by admin on Dec 3 2011. Filed under Gold predictions. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry