The cliché ‘all that glitters may not be gold’ could be literally true. While the lust for the yellow metal has taken the commodity to its all-time high price of more than Rs 17,000 per 10 gm, led by a fall of 55 per cent in India, global demand fell 49 per cent in the third quarter, according to World Gold Council (WGC).
When prices rise on falling demand, it could be a case of excessive speculation. In the face of uncertainty in the financial markets, however, this would not be out of line as investors skew their portfolios towards a ‘stable’ and ‘inflation hedge’ asset class of gold over equities or bonds.
In India, where it is the 22 carat jewellery that’s popular against 18 carat preferred by western tourists and 21 carat that the Arabs fancy, absolute levels of demand remained weak on a historical basis.
Jewellery demand, at 111.6 tonnes during July-September 2009, was down 42 per cent as compared to the previous year, while net retail investment demand, at 26 tonnes, recorded a decline of 67 per cent over the same period.
The report said overall sale of the yellow metal during Diwali was below expectations, belying hopes that that the traditional buying period that starts in late September would trigger the start of a resurgence in demand.
“Anecdotal evidence suggests that Diwali was, for the most part, disappointing,” the report said.
The high levels of the gold price continued to be the biggest constraint on jewellery demand.
Gold prices in India have jumped by nearly 50 per cent in the last one year.
“Consumer and retail demand in India has been impacted by the high local price levels witnessed in this quarter,” WGC CEO Aram Shishmanian said.
Analysts said prices would continue to remain high in the near term.
“Gold prices are in bullish momentum and high prices in the futures market,” said Tarun Satsangi, assistant vice president, Bonanza Commodity Broker Pvt Ltd.
The Reserve Bank of India had purchased of 200 tonnes of gold from the International Monetary Fund last month, while China has steadily increased its holding of the precious metal by 76 per cent over the last six years.