Indian gold demand gallops despite high prices

Gold imports by India this year may exceed 2009 level as near-record prices fail to deter buyers and festivals drive demand in the world's biggest consumer of bullion, according to the National Spot Exchange Ltd.

Purchases may total 600-625 tonnes, compared with an estimated 480-485 tonnes bought last year, Anjani Sinha, chairman and managing director of the nation's biggest bourse for trading physical gold.

India's bullion demand almost doubled in the first half of the year even as prices reached a record in June as investors sought a haven and higher salaries spurred jewellery sales, the World Gold Council said last week. Demand in the second half is likely to be at least 25 per cent higher from a year earlier, as the country enters the festival season, Sinha said.

Gold investment demand in India may rise 25-30 per cent in the second half of 2010 from a year ago as a shift in preferences from jewellery to exchange-traded funds (ETF), bars and coins gathers pace, he added.

Indians traditionally buy gold jewellery, which is the most common gift during religious events and an essential wedding present, but buyers are becoming increasingly aware of the benefits of holding gold in other forms. "Investment will outpace jewellery demand in one to two years as investors have more options like ETFs and coins," Sinha said.

ETFs are instruments that trade like shares and are backed by physical holdings of the commodity. Currently, jewellery accounts for 70-80 per cent of country's gold demand. Investors, facing inflation, volatile equities and low bank deposit rates in the world's biggest buyer of the precious metal, would raise the share of gold in their investment portfolio to 20-25 per cent in two years from the current 10 per cent, he said.