India's Appetite for Gold Improves

August 25, 2014

Mumbai-India (Aug 25)  As gold prices linger near a two-month low, demand in Asia has started edging higher with buyers in India increasing purchases ahead of a Hindu religious festival this week.

The premium that Indian buyers pay for gold has risen to $10 to $13 a troy ounce above the international spot price from zero in July, indicating that buying sentiment is improving in the world's second-largest consumer of the precious metal.

Still, demand remains tepid in China, the world's biggest buyer, and sales in the rest of the world are sluggish despite a number of geopolitical risks that normally increase demand for the safe-haven metal. India and China together account for about 70% of the world's gold market and sales usually peak near the end of the year because of buying ahead of Hindu festivals including Diwali, and Lunar New Year in China.

"Demand is picking up every day. Festival season sales have started," said Rahul Gupta, managing director of P.P. Jewellers, a large Indian jewelry chain.

Demand has risen as buyers have dived in after a heavy fall in prices over the past week, Mr. Gupta said. The rupee has also strengthened against the dollar, pushing domestic gold prices below the psychological mark of 28,000 rupees ($463) per 10 grams.

India will celebrate the birthday of the elephant-headed god of wisdom Ganesha on Friday, a major festive occasion in the western region. Gold sales in India usually rise during religious festivals as it is considered auspicious to buy gold ornaments. During Diwali, the Hindu festival of lights that is celebrated on Oct. 23, people also typically invest in gold coins and bars.

It has been an unusual roller-coaster ride for gold premiums in India because of uncertainty over policies, elections and monsoon rains. Gold premiums were at $100 in February, but fell to $60 in May after the government allowed private trading companies to import bullion and plunged to zero in July, when demand for gold is usually weak because of a lack of festivals.

Prithviraj Kothari, vice president of Indian Bullion and Jewellers Association, said gold imports in August will likely total 40 metric tons but is expected to rebound to June's level of around 70 tons in September.

"Everybody was fearing that a bad monsoon will hit the festival demand. Fortunately, the monsoon has picked up and it is not so bad," he said. The majority of India's gold demand comes from rural areas and therefore, the monsoon plays a big part in purchases.

In China, demand is expected to pick up around the end of the year, coinciding with wedding season demand and extending to Lunar New Year festivities in late-February. Shanghai gold has been trading at a premium of $3-$7 an ounce over London prices in the past month, indicating moderate to weak demand.

"People are still holding a lot of gold inventory [in China]," says Wallace Ng, a senior precious metals trader based in Beijing. "I don't see [domestic] demand improving in the short term. We are waiting for the old inventory to diminish."

Demand for gold in China will likely surge ahead of Lunar New Year, Mr. Ng said.

Source: WSJ

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