Mumbai: India’s gold traders are hoping that new sales avenues will lure the country’s burgeoning middle and lower-middle classes and boost sagging consumption of the yellow metal.
Investment-led demand for gold is now rising faster than appetite for jewellery as investors flock to safe haven assets even as they cut down on conspicuous consumption.
According to World Gold Council (WGC) data, investment demand accounted for 29% or 190.5 tonnes of the 660.2 tonnes India consumed in 2008.
Now, traders are hoping that at least two new channels will help boost demand.
India’s post offices and micro finance institutions have been selling gold coins to sneak into the country’s unorganized gold market, which still stands at about 80 percent of the total.
The service marked its debut in October and was available in over 100 postal offices initially. Coins can now be bought at about 150 offices across the country.
The initiative will be rolled out across 500 post offices by the end of the calendar year, said Ajay Mitra, India managing director of the World Gold Council, an organization funded by gold miners.
“A lot of new customers are now buying gold coins through postal services,” he said. “I think year-on-year, we are looking at 20-25% five year CAGR (Compounded Annual Growth Rate) in the coins market,” Mitra added.
India’s postal service has around 155,000 offices across the country.
Officials concur that the response to the initiative has been good, with customers lining up to buy gold coins.
The lowest denomination available was a coin weighing 0.5 grams costing about Rs1,000 (about $19.3).
Analysts cite “a sense of financial security” as the likely reason.
”Initially people would buy gold coins as an investment product, but may use it in difficult times to fall back on,” said Nayan Pansare, Mumbai-based consultant to the jewellery industry.
Micro finance institutions are also set to tap into this opportunity. “The concept of owning gold coins will get more popular and would widen the market,” said George Muthoot, director with Cochin-based Muthoot Fincorp, a micro-financer mostly focused on South India.
The Council has a list of potential partners and is still in the negotiation stage. Mitra expects to close the talks by the end of the month, and begin deploying the project by the next quarter.
Prices mar picture
But sellers remain gloomy about the high prices.
”Naturally, it will affect demand and people will wait for lower prices” said George Muthoot.
Gold futures on the Multi Commodity Exchange traded at Rs15,196 per 10 grams at 1:37pm, after hitting a record Rs16,040 20 on February.
ICICI Bank quoted gold at Rs15,500, up about 19% from a year ago. A 10-gram Axis Bank gold coin was quoted at Rs18,218. According to market estimates Indians are said to hold around 15,000 tonnes of the yellow metal.
India, the world’s largest consumer of gold, imports around 500-800 tonnes of the yellow metal annually.