Dwindling demand cools down India gold market

February 04, 2009

Commodity Online
MUMBAI: Dwindling demand thanks to zooming prices put the booming gold market in stagnant conditions in India on Wednesday as traders said there are more sellers than buyers for the yellow metal.

In the last few days and weeks, gold prices in India have been going up, touching nearly Rupees 14,450 per ten grams last week. This week gold prices cooled down to touch around the Rupees 14,400 mark. Imports of gold to India, the largest consumer and importer of the yellow metal in the world, crashed by as high as 90% in January thanks to high gold prices and lesser domestic demand.

On Wednesday, gold prices were between Rupees 13,900 and Rs 14,100 levels, said Ajay Shah, a bullion dealer in Zaveri Bazaar, Mumbai’s bustling gold market. He said high prices have prompted many buyers to hold back purchases hoping that the gold prices would come down. “Gold demand is low these days as sales are not happening because people do not want to purchase gold at these high levels. In fact, there are more seller of gold in the Indian bullion market these days than buyers,” Shah told Commodity Online.

He said traders and dealers are not willing to buy new gold stocks because “lots of unsold stocks are remaining with them in the warehouses.”

In the gold futures market also, there was not much action on Wednesday. At the leading Multi Commodity Exchange (MCX), gold was trading at Rupees 14,045 for ten grams for the April 4 contract delivery.

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Analysts said that the overheated futures and spot gold market in India have lost steam as prices dropped in the wake of the fall of gold futures in the global market against gains made by the US dollar.

But some of them have predicted that global economic meltdown, lure for gold exchange traded funds and investment appeal will drive India's gold prices to a record Rupees 16,000 levels per ten grams in three months.

According to Chairman of Gitanjali Group, Mehul Choksi, gold prices are rising and rising and it would not be a surprise if gold prices zoom to Rupees 16,000 per ten grams by April this year.

"Demand for gold as an investment opportunity is going up day by day among Indian investors. Added to this is the new apeal for gold ETFs in India," Choksi told reporters. He said people are going to invest more money in gold ETFs. "Gold ETFs a safer bet in times of crisis financial markets and currency movements," he said.

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Trading in bullion contracts contributed Rs 2,023,441 crore to the total turnover of India’s commodity exchanges during the first nine months of the current fiscal, according to a data from the commodity market regulator Foward Markets Commission (FMC).

According to Religare Commodities, inflationary figures have also been dropping throughout the world and since yellow metal is considered as a hedge against inflation, thus taking gold to lower levels. “As long as gold does not breach $931/ounce, broader trend continues to favour the bears. With crude oil trading weak and overall global scenario signifying deflation, gold is expected to remain challenged at higher levels,” said the commodities broking house.

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