India, the world’s largest market for gold that consumes around 700 tons of the metal a year, has traditionally been a market for jewelry, which is the most common gift during religious events and weddings in the country.

“The investment demand is more a function of disposable income as the overall savings of the country increases,” Sunil Kashyap, head/managing director at Scotia Capital told Reuters in an interview on the sidelines of a gold conference in Varca in the western Indian state of Goa.

The Indian economy is seeing a growth of about 8 percent and last year recorded a per capita income rise of more than 10 percent, according to government data. On an average, Indians save over 30 percent of their income.

The demand for 100 gram gold bars is quiet strong among investors seeking to lock away a part of their wealth, said Kashyap, when asked which product were investors most drawn to.

In the April to June quarter, India’s investment demand for gold was at 41.5 tons, up 7 percent on year, while jewelry demand stood at 123 tons, down 2 percent on year, data from the World Gold Council shows. 

“You buy jewelry now, may be over 10 years that fashion would have changed. It is better to buy coins, bars and then convert it into jewelry,” he said explaining the rationale investors were seeing while buying coins and bars. “Earlier people used to buy chains.”

Jewelry and investment demand will, however, be driven by different factors, he added.

“There will be fluctuations between the share of jewelry demand and investment. While jewelry demand will be festival related, investment demand will be price sensitive,” he said.

Kashyap said the festival season demand for gold looked promising this year as an adequate monsoon is set to boost farm incomes. India’s appetite for gold saw the sharpest fall in over a decade in 2009 because of a severe drought.

“We are entering into a peak period of September and October and onwards, so India might do (imports of) 600 tons this year,” he said. Last year, India imported 480 tons of gold.

India’s gold demand surges during key Hindu festivals such as Dussera in October and Deepawali and Dhanteras in November. Dhanteras is India’s single biggest gold buying day when people buy the metal to invoke prosperity.

Scotia is the only foreign firm among a group of 23 banks and agencies licensed to import gold into India. 

While Kashyap did not give details on Scotia’s share in the Indian gold market, industry members say it has a domineering presence and caters to major Indian traders and jewelers.

Refinery delayed

India’s state-owned MMTC Ltd expects production from its upcoming gold refinery, being jointly built with Switzerland’s PAMP S.A., to be delayed by three months as more time had to be spent on installing modern technology, a senior official of the joint venture said. 

The refinery was to start production by September, but it has now been delayed to December as “it took time for the company to absorb technology”, Rajesh Khosla, managing director of MMTC-PAMP India Pvt Ltd, said.

The refinery, which is 72 percent owned by MMTC with PAMP holding the rest of it, is in the northern Indian state of Haryana and is expected to produce coins from 100 tons of gold in the first year. 

“The demand for coins is quite good and prices haven’t made much of a difference (to sales),” said Khosla, who has been the India representative for the precious metals company PAMP for several years, facilitating sales of gold bars and coins.

Khosla said the refinery, being built with an investment of 600 million rupees ($12.8 million), would import 160-170 tons of gold concentrates from South Africa and Australia as raw material as India hardly produces any gold.

He said the refinery aims to produce coins with 200 tons of gold in the second year of operation. 

MMTC Chairman Sanjiv Batra told Reuters earlier this year that they also expect to export gold coins from the refinery.