India slows rush for gold

Ravi Chaturvedi was looking forward to giving his wife a gold ring as an anniversary present this January.

But with gold prices stubbornly high in rupee terms, the 34-year-old bank manager says he has changed his mind: He now plans to give her a mobile phone.

It is a telling choice.

Many Indians are either scaling back or eliminating their gold purchases outright. The drop-off in demand is exposing cracks in what gold investors have traditionally perceived as a solid support for global prices.

With many of its religious and cultural traditions steeped in the precious metal, India historically has been the world’s biggest consumer of gold, much of it cast into jewelry. Gold plays a particularly important role in wedding ceremonies, and physical demand for gold usually rises significantly in the fall and winter, which are considered auspicious times for getting married.

This year, however, the wedding season dovetailed with a rapid depreciation of the rupee against the dollar as investors fled India amid jitters about the broader economy.

India’s imports of gold fell to 20 million metric tons in November, down as much as 75% from a year earlier, according to estimates from the Bombay Bullion Association, an industry group for the country’s gold dealers.

Many investors and analysts believe that is a key reason why gold prices haven’t bounced back even though concerns about Europe’s debt load and the viability of euro persist.

Dollar-denominated gold futures in New York peaked at $1,888.70 an ounce in early August and have since declined by 15%. The price Indians paid for gold, in rupees, continued to rise beyond August, hitting a record 29,270 rupees ($558.59) per 10 grams on Nov. 16 as the Indian currency weakened against the dollar.

Gold futures on Friday eased 0.3% to $1,604.70 a troy ounce in New York, while in India the price of physical gold is up slightly at 27,710 rupees per 10 grams.

In recent years, the market for physical gold has been overlooked as investors focused on its growing popularity as a “safe-haven” asset that retains value during crises and on big positions taken by hedge-fund titans like John Paulson through exchange-traded funds.

But the retrenchment in India shows that trends in physical demand can still exert significant influence on prices. “You have to keep focus on India at all times,” said Nelson Saiers, chief investment officer at New York-based hedge fund Alphabet Management LLC, which has about $600 million under management.

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Posted by admin on Dec 24 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