Against all odds, and beating all market expectations, soaring gold prices in the international market which are reflected in the metal's price in India, have not daunted India's passion for the yellow metal.
In the third quarter of this year, and given the onset of the festive season in India, gold imports crossed last year's total imports by almost 100 tonnes, to reach a new sizzling high - 624 tonnes. Traders and market analysts insist that the 750-tonne mark for imports is a sure-fire winner by the end of the year.
``In October, we exceeded the 2009 import levels. Consumer demand has been so high and continues to be, despite the high prevailing price of gold,'' said Manikbhai Dolakia, a bullion trader, operating out of Zaveri Bazaar in South Mumbai.
The jump is exciting, since even in early September, high prices of the yellow metal have hit India's September gold imports. However, heavy purchases by traders and manufacturers, ahead of the traditional gold-buying season, boosted overseas purchases to an all-time high, as compared with the 26.8 tonnes imported a month ago.
India is the world's largest importer and consumer of gold. Current high rates have actually led to a demand compression which, was reflected in the slowing of gold imports.
The steady decline in the quantum import of the precious metal during the first six months of 2010, shows that inflows fell from 34 tonnes in January to 13.8 tonnes in June, with the trend broken only in April, when 34.2 tonne was imported, according to data gleaned from the Bombay Bullion Association. That was again to account for an auspicious date in May, when gold-buying is considered auspicious.
According to the World Gold Council's (WGC) Managing Director, Ajay Mitra, in 2009, total imports stood at 559 tonnes. However, in the third quarter of this calendar year, India bought 214 tonne of gold as compared to 176 tonne in the same quarter in 2009.
He was speaking to mediapersons on the sidelines of an event held to release its latest report on gold demand trends in Q3, 2010. The WGC report notes that consumers have turned to gold to hedge their risks.
``Real estate prices have been firming up for quite some time and this has driven consumers to seek out safer options. During the same period, (September quarter), gold consumption jumped 28 per cent. Did anyone say rising prices would pull this down,'' asked Mitra.
The WGC report notes that in the third quarter, total domestic demand including jewellery and investment was 229.5 tonne against 179.6 tonne a year ago. This was despite the stunning 23% rise in the price of gold.
India imported only 559 tonne of gold in 2009. ``By September, we have tracked that domestic demand has risen by 79%,'' said Mitra.
Interestingly, investment demand in the first nine months also rose 108% to 136.9 tonne. Domestic demand during Q3 accounted for 25% of global demand, the WGC data showed, which stood at 922 tonne, up 12% from the September quarter last year.
Global jewellery demand was up 8% driven by India , China, Russia and Turkey, and investment demand from the retail sector was up 25%.
But all is not well in the Indian market. A senior official at IndusInd Bank, one of the banks permitted by the Reserve Bank of India to import gold, said the demand for the precious metal has been on a downward trend, post the festive season.
He added that the quantum of gold imports shows volatility on a month-on-month basis. "Compared with a couple of years ago, the demand for gold is significantly down,'' said S. Sahane, the bank official.
The RBI has permitted certain banks to import bullion on consignment basis for domestic jewellers and exporters. Banks do not stock gold. Banks and agencies such as the MMTC account for nearly 80% of the gold imports.
Another senior analyst at a Securities firm in Mumbai, Gopal Shah, said gold imports would slide due to high international prices and depreciation of the rupee.
"Whatever we import is costlier now. So, our imports are lower. On the consumption side, demand may be less, but investment demand is still there because of the uncertainty in Europe. All the investors are keeping an eye on the contagion effect of Europe's debt crisis and the domino effect in Asia,'' he said.
As long as Ireland negotiates its rescue package with the European Union and the International Monetary Fund, the price of gold will jump higher in the international market. The skirmish between North and South Korea has also got investors pulling away from riskier bets in Asia and shifting toward the US dollar and gold.
