Gold craze defies logic

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In spite of rising prices, India’s gold demand seems to be recovering. India imported 193.5 tonnes of gold in the first three months of 2010, almost eight times the last year’s figure — when demand had slumped. Meanwhile, a combination of economic concerns and a weak rupee pushed up the price of gold further. The price of pure

gold (99.9 per cent) in Mumbai on Wednesday closed at Rs 18,745/10 grams. Industry sources say that the demand for the yellow metal was also strong in the Akshay Tritiya season.
“Improvement in the overall economic scenario coupled with a stability in gold prices explains the increase in India’s gold consumption,” says Mr Ajay Mitra of World Gold Council (WGC), an industry body. According to WGC figures, India’s gold imports for the first three months of 2010 stood at 193.5 tons – against net imports of just 24 tonnes last year. Last year’s figures were abnormally low for India, which is traditionally the world’s top consumer of gold. As prices have stabilised, interest in gold is going up again.
Market sources say that gold sales on an overall basis were up this year during the Akshaya Tritiya season. “This year, we saw a 25 per cent jump in gold sales during the Akshay Tritiya season,” says Mr Rajesh Mehta of Rajesh Exports, a leading jewelery maker. “The rising price of gold has never been a deterrent to Indian consumers who continue to perceive gold as a value store. The price of gold has been steadily increasing since 1947 when gold cost Rs 10 per gm, it is still perceived as one of the best forms of investment in India,” he adds.
Some of the banks that sell hallmarked gold reported large jump in sales figures. Electronic traded funds — which are mutual funds investing in gold – have also seen increasing investor interest. Currently, the net investment in these funds in India is over 10 tons — under Rs 12,000 crore in value.
India has traditionally been the world’s largest consumer of gold. The Indian public holds an estimated 18,000 tonnes of gold. On Wednesday’s price of $1,210/oz, the value of the hoard works out to just over $700 billion.