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AGORACOM Wire - Wednesday February 15th, 2012

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Message: Fall in gold prices may increase demand

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Fall in gold prices may increase demand

posted on Aug 20, 09 05:00PM

MUMBAI: Fall in gold prices below Rs 14,000 per 10 gram from the current over Rs 14,800-level may increase demand, according to World Gold

Council (WGC). In a data furnished on Wednesday, the council said gold demand in India fell 38% in Q2’09 (April-June) to 109 tonne following high prices and global recessionary pressure. But demand in Q2’09 recovered from the exceptionally low demand of 17.7 tonnes in Q1’09.

“Any dip in prices below the stubborn Rs 14,000 per 10 gram level is likely to encourage consumers back to the market,” WGC said in its report. The report said that there is considerable pent-up demand that could potentially be unleashed at lower prices.

Jewellery demand, which is the largest component of demand, fell by 31% at 88 tonnes in Q2 against last year. Although the prices stayed below record high levels in the second quarter, in the first quarter (Rs 16,040 in Feb’09), they were high on a historical basis fluctuating between Rs 14,000-Rs 15,000, which discouraged investors, according to WGC.

Below-average rainfall in June was a further deterrent to gold demand as the rural population is heavily dependent on a good monsoon to boost their agricultural incomes, the report said.

WGC chief executive officer Aram Shishmanian said they expected consumers, particularly in India, to look for opportunities to buy back the jewellery that has been recycled over recent quarters. There are signs of demand revival and according to WGC the upcoming diwali festival and wedding season should help to underpin a seasonal improvement over the remainder of 2009.

Demand for bars and coins fell by 56% at 21 tonnes in Q2’09 compared to Q2’08. The council said demand for gold returned to positive levels from the dishoarding (mainly by wholesalers) seen in Q1’09, but was weak in comparison to last year.

“....We expect consumers, investors and the trade to look for opportunities to buy following an exceptional period of profit-taking and de-stocking,” said Mr Shishmanian.

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