India again saw gold rush despite robust stock markets (2010 in Retrospect)

NEW DELHI - Despite the sharp recovery of India’s capital markets, appetite for gold in the world’s largest consumer of the precious yellow metal remained robust in 2010, sending prices soaring to record highs at the retail level.

Prices had been on an upward climb throughout the year, particularly since May, when the economies of some European countries went into a tailspin and gold was seen as a safer bet for investors.

But soon after Diwali, the festival of lights, in November, they touched an all-time high of Rs.20,893 per 10 grams on Dec 7. Analysts expect prices to remain high next year as well, with some even predicting Rs.25,000 per 10 gms by May.

It is estimated by the World Gold Council, the premier global institution on all matters on the yellow metal, Indians, including the government, hold an estimated 18,000 tonnes of gold worth some $800 billion now, or 11 percent of the global holding.

This means per capita gold of around 15 gms in India. Or to put it differently, each Indian citizen potentially holds 15 gms of the precious metal worth over Rs.30,000 at today’s prices.

“India is the largest gold market in the world. As such, the likely recovery of local gold demand to pre-crisis levels is of considerable strategic importance to the wider gold market,” said Eily Ong of the World Gold Council.

“India has one of the highest savings rate globally. It is estimated that around 30 percent of per capita income is saved and out of this 30 percent, 10 percent is already invested in gold,” the council said.

According to Balram Garg, managing director and chief executive of the Delhi-based PC Jewellers’ Group, banks across nations stored more gold this year, as it can be easily sold and bought easily during crises.

In fact, the Indian government’s gold reserves, which were worth a mere $3.832 billion a year ago, are now valued several times more at $22.124 billion as on Dec 17, as per data available with the Reserve Bank of India (RBI).

The council also says when compared with the country’s gross domestic product in the past 10 years, which grew by around six percent annualised, the value of gold demand in India has increased at an average rate of 13 percent per year.

“As an asset class, gold has outperformed selected domestic equity indices and has provided an average annual rate of return of 30 percent over a five-year period ended Sep 30, against one percent by Sensex of Bombay Stock Exchange.”

Analysts explained that traditionally, India has seen gold demand surge during the festival of Dhanteras — considered the most auspicious day for buying gold and utensils — just before Diwali.

But over the past few years, Akshaya Tritiya in May has emerged as another major strategic date for the purchase of gold in India. The sale of gold on that date surged 28 percent this year, the analysts said.

“This year we had more footfalls for jewellery than in 2008 and 2009, though prices kept soaring. People believe like any other commodity, gold prices will remain high and want to buy as much as possible,” said Pawan Verma of Vipul Jewellers.

In 2009, the Indian demand accounted for 559 tonnes, or 15 percent of the total global gold market worth $19 billion. This year, the demand is expected to have surged further ahead, with 624 tonnes of imports during the first three quarters.

Looking ahead analysts expect prices to remain firm. Said PC Jeweller’s Garg: “The price is likely to cross the Rs.25,000 per 10 gms mark by Diwali time of next year.”

Here are some key facts and figures concerning gold in 2010:

-India is estimated to have accounted for 15 percent of global gold demand in 2010.

-Imports amounted to 624 tonnes in first three quarters against 559 tonnes during whole of 2009.

-Prices touched all-time high of Rs.20,893 per 10 gms Dec 7.

-Gold prices appreciated nearly 30 percent this year against 15.5 percent rise in Sensex.

-Prices seen crossing Rs.25,000 per 10 gms by Diwali 2011.

-The Indian government’s gold reserves shot up from $3.832 billion last December to $22.124 billion now.

-Nearly 10 percent of India’s household savings invested in gold.

-Demand for gold from jewellery up 53 percent during first nine months

-2010 expected to end with largest demand from the Indian jewellery sector since 2005.

(Rohit Vaid and Priyanka Sahay can be reached at biz@ians.in)