India strongest growth market for gold in second quarter of 2011
Moneylife Digital Team 18 August 2011

Domestic demand for the yellow metal in the second quarter of 2011 constituted 32% of global demand for gold (combined with jewellery and investments) and was at 248.30 tonnes

According to the latest World Gold Council report, India was the strongest growth market in the second quarter of 2011, with total consumer demand for gold rising 38% in tonnes compared to the second quarter of 2010. In value terms, demand for gold increased from Rs31,730 crore in the second quarter of 2010 to Rs53,800 crore in the second quarter of 2011—an increase of 70%. Indian gold demand in the second quarter of 2011 constituted 32% of global demand for gold (combined with jewellery and investments) and was at 248.30 tonnes.  

According to the Gold Demand Trends report released by the World Gold Council, jewellery demand surged to 139.80 tonnes, a 17.1% increase from Q2 2010 boosted by the festive season and the widespread expectation among Indian consumers about a further increase in the price of gold. In value terms, jewellery accounted for Rs30,290 crore in Q2 2011—an increase of 44% as compared to Q2 2010. Investment demand comprising demand for bars and coins as well as ETFs (exchange-traded funds) accounted for 108.50 tonnes in Q2 2011, a 78% increase on Q2 2010. In value terms investments totalled to Rs23,510 crore in Q2 2011, an increase of 119% as compared to Q2 2010.

While the fluctuations in gold prices in India has reduced to a great extent, this has in- turn reinforced the investment in gold and customers are now encouraged to make purchases in gold instead of deferring them for the future. According to Ajay Mitra, managing director, Middle East and India, World Gold Council, "The second quarter of 2011 has been excellent for investments in gold around the world, especially in India. With inflation reaching record numbers and there being extreme volatility in the equity markets, investments in gold continues to prove popular as investors look to diversify their portfolios and protect their wealth."

Gold's strong start to the year was reinforced during the second quarter of 2011 where total global gold demand measured 919.80 tonnes, worth a near-record $44.50bn, with broad-based support across all sectors and geographies. Standout markets were India and China, as these two markets accounted for 52% of total bar and coin investment and 55% of global jewellery demand. Marcus Grubb, Managing Director, Investment, World Gold Council, said in a statement: "The strength of demand in India and China, coupled with an overall drop in recycling activity this quarter, demonstrates that consumers have adjusted to the current price environment and expect the upward price trend to continue. In addition, ongoing macroeconomic uncertainty, the continued sovereign debt crisis and widespread inflationary pressures, will result in gold demand remaining strong."

Global gold demand in the second half of 2011 will remain strong due to a number of key factors—despite higher gold prices, Indian and Chinese demand grew 38% and 25% respectively, during Q2 2011, compared to the same period of 2010. This growth is likely to continue, due to increasing levels of economic prosperity, high levels of inflation and forthcoming key gold purchasing festivals. The impact of the European sovereign debt crisis, the downgrading of US debt, inflationary pressures and the still-fragile outlook for economic growth in the West are all likely to drive high levels of investment demand for the foreseeable future. Central banks are likely to remain net purchasers of gold. Purchases of 69.40 tonnes during Q2 2011 demonstrated that central banks are continuing to turn to gold to diversify their reserves.

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