BOMBAY, 5 November — Diwali, the Indian festival of lights, is just round the corner. And along with the glitter of the lights, it is that time of the year when India’s demand for the glitter of gold also spurts to the maximum. Moreover with the marriage season also set to begin with a bang, gold indeed will rule the roost over the next few days. One does not know whether Diwali will light up the prices of the Indian stocks but it is certain that Indian gold will shimmer in all its glory. The festive season is considered to be extremely auspicious for buying gold.
So this season gives rise to three kinds of consumers — one who buys as a trader, second who buys for the festival and the third who buys it as an asset.
What is noteworthy is that whilst all the other markets — stock, bonds and forex crashed in the debris of the Twin Towers on Sept. 11, gold prices buckled the trend and infact soared up by 6 percent to $280 a troy ounce and continued to go up to $290 where it stabilized. This was proof that once again, in times of crisis, gold can beat other markets.
The world gold demand is inching forward. It has increased about 18.4 percent since 1996, growing from 2,779.5 tons to 3,293 tons in 2000. The first two quarters of 2001 showed an increase of one percent over the first half of 2000. This year-on-year increase of 1-2 percent has been the trend the last few years. A positive is that this is the first steady increase for the third consecutive year since 1996.
India is the major consumer of gold, accounting for about 25 percent of demand. It is followed by the Americas (North America, Brazil, Mexico) and then Greater China (China, Taiwan, and Hong Kong). India’s demand growth has been strong, rising 50 percent since 1996, as has been the Americas’. But the combined growth of 55 percent recorded by these two was offset by the steep fall in demand from Japan, Thailand, Indonesia, and Greater China.
Demand has also started waning in Europe and the US. The trend indicates low interest in investing in gold. It is now a stated fact that the returns from gold have not matched that from other investment avenues. The stock market was definitely a more attractive prospect in 1998.
Oil prices rise while stocks fall. Again, in October 1978, gold prices went up from around $220 to around $370. But the most significant jump was during the Iran-Iraq war when prices soared to an all-time high of $612 from $306. The $600 range did not sustain, and prices eventually returned to the earlier levels. In the 1980s, gold prices stabilized at $400 and hovered in the $350-450 range till 1998.
Another important factor is that during both the World Wars and the Great Depression of 1929, gold prices witnessed no wild swings. The 1970s and the early 1980s were the ‘golden years’, and the prices seen then may not be reached again. Just as the $600 price after the Iran-Iraq war was not sustainable, so too the current $290. In time, prices will probably stabilize in the $250-$270 range.
In the Indian markets, though overall demand for gold will remain sluggish because of the negative sentiments, demand for jewelry is picking up mainly because the marriage-season buying is inelastic. Another positive factor this season is good crop in most states.
Traders are of the opinion that the demand may not be as good as last year, but it will be moderate given the current situation. Even the festival demand is just 25 percent of what it was last year. In normal times, the daily trade in the country was around 35,000-40,000 TT (ten tola) bars, which is down to just 5,000 to 7,000 TT bars now. Traders are certain that the demand will surge as Diwali approaches. In Ahmedabad, for instance, the daily turnover has risen to 700 to 800 TT bars daily, which a month back was just 100 to 200 TT bars. By Diwali, it is estimated to reach around a 1,000 TT bars.
Another significant development is that corporates across industry from FMCGs to automobiles, from consumer electronics to paints are aiming to provide a glimmer of hope amidst the pall of an economic downturn. About 15 well-known brands are promoting gold as an add-on incentive to buy their products. Gold coins, bars, jewelry and even a gold table may be yours for the taking if you buy a bar of soap, a whitening cream or roasted coffee, a TV set, or even a hot pair of wheels.
Well, with so much happening, there is no doubt that the coming days will add more shine to the yellow metal and will reinstate India’s position as the numero uno consumer of gold in the world.
