India gold demand plunges as prices skyrocket

February 16, 2009

Commodity Online
MUMBAI: Even as India presented an interim budget on Monday, gold futures and spot markets remained dull as buyers and traders stayed away from the bullion streets hoping the overheated gold prices would come down.

Demand for physical hold has drastically dropped thanks to the high gold prices that touched a historic high of Rs 15,000/- per ten grams last week. On Monday, in Delhi’s gold market Chandni Chowk and in Mumbai bullion street Zaveri Bazaar, there was not much action as far as gold buying was concerned.

”Gold buyers are sitting at home. No one is willing purchase gold at these astronomical prices,” said Vivek Malhotra, a gold traders in Zaveri Bazaar.

Dwindling demand thanks to high prices has put the booming gold market in India in dull conditions as traders said there are more sellers than buyers for the yellow metal. But analysts said gold prices can only go up. And a new survey by Reuters said that the India gold prices would touch Rs 16,000 by April.

The Bombay Bullion Association said on Monday that there has been little gold imports to India in February thanks to plunging sales and increasing unsold stocks. In January, India's gold imports had plunged by 90% because of the skyrocketing prices of the yellow metal.

On Monday, gold prices at India’s largest commodity bourse the Multi Commodity Exchange (MCX) was trading at Rs 14,698 per ten grams, dropping Rs 69. Similarly, in the bullion markets of Mumbai and New Delhi, gold prices were between Rs 14,300-14,800 mark per ten grams.

Dinesh Singh, a gold trader in Delhi said that high prices of gold have prompted many buyers to hold back purchases hoping that the gold prices would come down. 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.

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.

India's gold collection under exchange-traded funds rose a marginal 1.1 percent on month to 5.39 tonnes in January. India has five Gold ETFs which together hold a dismal quantity of over 5 tonnes compared to the 15,000 tonnes of gold that Indian households own.

Across Asian countries, gold prices came down as investor demand dropped after the yellow metal’s big rally last week to more than $950 an ounce, the highest in six-months.

Gold for immediate delivery plunged as much as 0.6 percent to $936.33 an ounce, before trading at $937.95 in Singapore. Gold for April delivery was down 0.4 percent at $938.70 in after-hours electronic trading on the Comex division of the New York Mercantile Exchange.

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