High prices lower gold demand

High prices lower gold demand
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First Published: Sun, Jun 14 2009. 12 33 PM IST
Updated: Sun, Jun 14 2009. 12 33 PM IST
Mumbai: India’s demand for gold has failed to pick up as high prices of the commodity has kept buyers at bay, a senior economist said.
“Buyers have stayed on the sidelines mainly due to high prices (of gold). The first marriage season of the year has come to an end and there are no signs of demand for gold picking up,” National Commodity & Derivatives Exchange Ltd (NCDEX) Economist Manasee S Gokhale said in a report here.
Last week, gold prices opened at Rs14,644 per 10 grams initially and moved higher to Rs14,720 levels before closing at Rs14,466.
India’s gold and silver imports have been badly hit due to lower demand. India’s gold imports fell by a drastic 45% at 450 tonnes in 2008. There has been only a trickle of gold imports up to April 2009, reportedly only 32 tonnes so far.
The main reason has been the high prices of gold that has kept away a significant number of buyers. Most of the retail buyers have shied away from the market as gold at Rs14,500 per 10 grams seems to be too high.
The years first marriage season has come and gone without much pomp or activity and the dismal imports are proof enough to show how price sensitive Indian consumers are, Gokhale said.
Also, Indian banks which are major importers of gold are currently overloaded with a lot of carryover gold stocks from last year and hence unable to import till they clear the existing stocks.
The dollar has been depreciating at a strong pace and there seems to be a new underlying fear about the sustainability of the current improvement in the economic mood, Gokhale said.
To add to this is the Chinese State Reserve Bureau still on its massive shopping spree, all helping gold to reach higher levels.
“Despite stagnation of investment flows, gold averaging above $928 per ounce in the international market in May and other factors helping the metal, gold promises to become stronger in the months to come,” Gokhale said.
The dollar is being monitored closely and further weakening of the greenback would cause further problems for the already battered financial system, which could undermine confidence again in the markets, he said.
A falling dollar would mean people losing confidence in the economy and all this, when there are slight signs of recovery. This would in turn mean lesser risk-taking where gold will suffer too, as liquid assets are sold to cover margin payments against less liquid assets, the economist said.
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First Published: Sun, Jun 14 2009. 12 33 PM IST
More Topics: Markets | Gold | Bullion | Dollar | Rupee |