Tepid demand, a sign of waning interest in gold?

Mumbai-India (Sept 6)  Given the inverse relation between the U.S. dollar and gold price, a strong dollar has been putting pressure on gold price in recent weeks. This has led many to question if gold’s run as an asset class has diminished and whether India, with the emergence of alternative investment options such as equities and property, will see a waning interest in gold.

Demand for gold in India has been tepid in the last quarter given the restrictions in place for its import. It may be premature to dismiss India’s affinity for gold even though it lost around 5 per cent in the current calendar year. Gold closed the week at Rs.27,300 per 10 gram.

“In the last quarter, investors sold gold and invested in shares given the booming equity markets,” Suresh Hundia, President-Emeritus, India Bullion & Jewellery Association, told The Hindu. “We will have to wait and watch over the next few weeks when festive buying starts coming in as the geopolitical situation internationally has certainly cooled down,” he added.

The last quarter of the calendar normally sees a demand surge with the onset of Dussera and the wedding season in December. But lower prices tend to encourage gold buying in India.

“Gold is currently trading low and is attractive for bottom-fishing,” Nitin Nachnani, analyst, Geojit Comtrade, a commodity trading outfit, said. He felt the current price levels of $1,240-1,250 an ounce and Rs.27,300 per 10 gram are support levels and have been repeatedly tested but not breached.

Besides, Mr. Nachnani said “SPDR Gold Trust, among the world’s leading funds, has been accumulating gold at dips and is expected to buy heavily at $1,300 levels which could turn the trend bullish.”

The premium on gold, which had gone down to negligible levels, is now $7-8 an ounce, according to Mr. Hundia. He felt domestic price could range between Rs.26,500 and Rs.28,500 per 10 gram till Diwali. “There could be a demand pick-up in the festive season and further with the wedding season in December but time will tell,” Mr. Hundia said.

Source: The Hindu