Gold's best start in over 30 years leaves In­dian buy­ers cold

The Pak Banker - - MARKETS/SPORTS -

While global in­vestors have piled into gold as a haven from fi­nan­cial tur­moil in 2016, the metal's best start to the year in more than three decades has tem­pered the en­thu­si­asm of buy­ers in In­dia.

"When there's volatil­ity in gold, peo­ple tend to shy away from mak­ing a pur­chase," said Ra­jesh Khosla, man­ag­ing di­rec­tor at MMTC-PAMP In­dia Pvt, the big­gest re­fin­ery in the coun­try. "It's not that they won't buy, but I don't see the sort of vol­umes we have seen in the past years," he said in an in­ter­view. Bul­lion surged as much as 19 per cent to $1,263.48 an ounce this year af­ter the Fed­eral Re­serve sig­naled it may de­lay fur­ther in­ter­est-rate in­creases and as as­sets in ex­change-traded funds ex­panded to the high­est since July. That hit de­mand in In­dia, the largest user af­ter China, as buy­ers de­ferred pur­chases to see if the gains held. Prices have al­ready dropped 5 per cent from last week's high to $1,200.82 and Gold­man Sachs Group Inc sees $1,000 in 12 months.

There may be other rea­sons why peo­ple in In­dia are not so keen to buy. Farm­ers faced an al­most dry win­ter af­ter the first back-to­back short­fall in mon­soon rain in three decades, which has cut har­vests of ev­ery­thing from rice to sugar cane. That's hit in­comes in ru­ral In­dia, which ac­counts for 60 per cent of the na­tion's gold de­mand. Buy­ers also have to de­clare their unique iden­tity num­bers on pur­chases above a cer­tain limit. "I'd be very cau­tious on gold as right now we have a com­bi­na­tion of fac­tors af­fect­ing de­mand like the do­mes­tic agri­cul­ture scene and the global volatil­ity," Khosla said. "The mix of the two means that peo­ple will wait and see."

Con­sumers are in no hurry, Bachhraj Ba­malwa, a di­rec­tor at the All In­dia Gems & Jew­ellery Trade Fed­er­a­tion, said by phone from Kolkata.

"Un­less there's a big slump in prices, de­mand this year will be lower than last year." Pur­chases were 848.9 tons in 2015, World Gold Coun­cil­data show. De­mand peaked at about 1,000 tons in 2010 when In­dia was the largest con­sumer. The na­tion im­ports al­most all the gold it con­sumes and is try­ing to cut re­liance on for­eign sup­plies to curb the cur­rent-ac­count deficit and help the ru­pee. The lat­est salvo in­volves en­cour­ag­ing peo­ple to lend or sell to banks some of the 20,000 tons in the hands of house­holds and tem­ples. The govern­ment has in­tro­duced gold bond and de­posit plans to at­tract in­vestors. Progress has been slow. The first slice of bonds, which are linked to the price of bul­lion, lured in­vest­ment equal to 917 kilo­grams, while the se­cond tranche pulled in 2.79 tons.

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