Gold demand in India, the world's largest consumer,
surged last week as a collapse in its price coincided with one of the most
auspicious days for the country's majority Hindus to buy the yellow metal.
India, the world's top buyer of gold, is
believed to account for close to 20% of global demand. The country
imported 864 tonnes last year - even though gold prices were at a near
unprecedented level. Gold imports are likely to increase 20% to about 183.6 tons
in April-June quarter.
An 11% slump in gold prices since last week
released years of pent-up demand, resulting in a supply shortage in the
physical market and triggering higher premiums. The price of gold in Mumbai has
dropped by nearly $100 per 10 grams in just one week.
“The falling prices have come in as a boon and Indian
consumers are making the most of it ahead of Akshaya Tritiya festival, which is
on May 13th this year,” said Bundeep Singh Rangar, Chairman of
London-based advisory firm IndusView. “It is a tradition to buy gold in India
where it is synonymous with social status and prestige.”
The term "Akshaya" means
"infinite", or "never diminishing", and gold bought and
worn on the day of Akshaya Tritiya is said to bring "never
diminishing" good fortune. As such, retailers step up their marketing
campaigns around the day. Shree Ganesh, for example, is one of several outlets
hoping to entice customers through their doors by offering free gold coins with
purchases over set amounts.
As the price of gold fell from its 2011 peak at
more than $1,800 an ounce to about $1,400 an ounce in the past week,
jewellery retailers in India started to report a surge in sales - and expect
volumes to continue to rise in the coming months.
India's gold imports are likely to go up by 20%
to about 183.6 tonnes in April-June quarter due to rise in demand triggered by
weak prices.
India has always been almost completely dependent
on imports, which is why India's government increased import
duty on gold from 4% to 6% in January this year.
“If commodity prices are sustained at
today's lower levels, the current account deficit may improve,” said Rangar. “This
will in turn help the Reserve Bank ease its policy rates for its next month’s
policy review.”
Finance Minister P.
Chidambaram recently said he expected the country’s current account deficit for
the 2012-2013 fiscal year ended March to be about 5% of GDP and perhaps half that
amount in one to two years.
