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Where will gold go now?

business Updated: Apr 21, 2012 00:40 IST
Sachin Dave & Sachin Kumar

Pranav Jani, a 33-year-old broadcast industry executive, who had shunned buying gold for about a year and invested in mutual funds instead, is getting ready to go back to the yellow metal again next week on the Hindu festival of Akshaya Tritiya. The slightly softer prices have emboldened people like him. “Though the prices are still on the higher side, I would be buying a small portion of gold on the Akshaya Tritiya,” said Jani.

His mild optimism on the eve of the annual gold-buying festive period may just rev up sagging gold sales in India, historically seen as the the hungriest nation when it comes to hold.

According to the World Gold Council, demand for gold in India dipped by 7% in 2011 from 2010. Demand for gold jewellery dipped by 14% to 567.4 tonnes in 2011 as against 657.4 tonnes in 2010.

“Despite a challenging year, India remained the largest country for gold demand in 2011, and we believe that the strong intrinsic and emotional affinity towards gold in India will continue to fuel demand over the coming year,” said Ajay Mitra, managing director, World Gold Council (Middle East & India). India lost its top spot in the fourth quarter of 2011 to China, and in 2012 again as Chinese bought 190.6 tonnes of gold against India's 173 tonnes. World Gold Council predicts that China may as well overtake India in 2012 gold purchased annually.

Indians traditionally purchase gold in the form of jewellery more than as a pure metal for investement. However, in 2011, gold investments recorded a marginal rise of 5% from 349 tonnes in 2010 to 366 tonnes.

Despite this, in absolute terms the purchase of jewellery still occupies bigger mind space in Indian consumers despite the change in lifestyles that make jewellery less hot in urban circles.

Analysts expect gold prices to linger around Rs 27,000 per 10 grams in the short term. “Gold may come down to Rs 27,000 level in the current quarter. Retail investors should buy this festive season but in tranches and can start fresh purchases once the prices touch Rs 27,000 mark,” said Atul Shah of brokerage firm Emkay Commotrade. Disappointing US job data combined with unresolved issues on debt-laden European economies, and a slowdown in China, could sustain gold in focus and keep its price high.

“The chances of gold dipping below Rs 27,000 are low,” Shah said.

Gold has historically been seen as a safe haven. This Akshaya Tritiya, the big question is whether the lingering global uncertainties that add to the metal's lustre will persist or not.