Gold demand in India slumps by 83 per cent

25 May 2009

The demand for gold in India - the world's largest bullion market - declined by a whopping 83 per cent to 17.7 tonnes from the year-ago period. This comes on the back of record rupee prices on account of its depreciation against the dollar, and a downturn in the domestic economy.

According to figures released by the World Gold Council (WGC) in its first quarter of 2009, jewellery demand in India for the first quarter at 34.7 tonnes was the lowest quarterly demand in at least 20 years, while net retail investment turned negative (-17 tonnes).

In rupee terms, gold peaked at an all-time high of Rs 15,780 per 10 gm in the Mumbai market on 24 February as the weaker rupee intensified high prices in international market.

The low demand for gold jewellery and large scrap flows helped push local gold prices to a discount below international prices providing a profitable opportunity for wholesalers, who became exporters of gold. This resulted in India exporting a significant 20 tonnes of gold during the quarter - the first time that India has turned a net exporter of gold.

According to WGC, the second quarter demand is expected to improve due to a good buying on the occasion of Akshay Tritiya and a subsequent summer wedding season. However, to support to the jewellery demand, the prices need to remain relatively stable and below their recent highs.

Globally, the total demand for gold in the first quarter of 2009 rose 38 per cent on a year-on-year basis to 1,016 tonnes as investors bought the yellow metal amidst fears of inflation and the prevailing financial uncertainty. In value terms, there was a 36 per cent increase to $29.7 billion.