indian gold market - big buying

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    This was also reported on the US's ABC World News Tonight programme for Sunday night.

    Monday, October 17, 2005

    World's largest market for gold is buying up big to fight inflation


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    Indian households are on a record gold-buying spree as oil price-driven inflation threatens to wipe out savings from rising incomes in one of the world's fastest-growing economies.

    Gold consumption in India, the world's largest market for the precious metal, had shot up 50 per cent in the first half of the year to 508 tonnes, only a little less than the 642 tonnes consumed last year, the World Gold Council said.

    The price of gold surged to a record high of US$442 an ounce in India last week, although it fell marginally later.

    However, prices are expected to climb again when the wedding and festival season starts among the population of 1.1 billion, brokers say.

    "Whoever has invested in gold, has made extra money. People are also turning to it as a hedge against the high oil prices," gold trader Jatin Mehta said.

    The two successive increases in petrol prices since June are stoking India's inflation rate, which crept above 4 per cent in the week to October 1. The central bank has predicted inflation will range between 5 and 5.5 per cent this fiscal year.

    Middle-class family incomes have been increasing in an economy that is growing at between 7 and 8 per cent, but banks offer interest rates at 4 to 5 per cent, barely on a par with inflation.

    Traders say the price of gold is likely to rise a further 5 to 10 per cent by the end of the year as more people invest savings and demand for jewellery soars during the October-February festival and marriage season.

    Gold rose to an almost 18-year high in Europe last week and was seen hitting the next big level of about US$480 to US$500 an ounce amid buying by funds over inflation worries.

    "The linkages between international prices and Indian gold are very close. The demand in India is also because of increasing income levels, due to the rising economic growth rate," World Gold Council Indian office head Sanjeev Agarwal said.

    India's economy grew 8.1 per cent in the three months to June, compared with 6.9 per cent over the past financial year to March. Indian consumers said their decision to buy was not just influenced by economic factors, but traditional preference for gold on special occasions.

    "I am buying for my daughter's marriage. Gold prices have risen, but they will keep on rising. And one really has no choice but to buy gold when an occasion like marriage is happening in the family," said housewife Deepa Ray, visiting a jewellery shop.

    Mr Mehta said a large portion of the buying demand was from smaller cities and towns, where people were not comfortable investing in stock markets, mutual funds or government saving instruments.

    The buying trend in gold has seen a subtle shift in preference for lighter and different jewellery designs so that they can be worn on various occasions and not just at marriages, industry officials say.

    "Indian women are looking for lighter jewellery. They wear it after asking themselves where I am going, what I am doing," Mr Agarwal said.

    "But their preference for the metal remains intact."

    He said the rise in prices was also because the gold supply had remained at the same level in the domestic market in parallel to demand increases.

    "People are holding on to their stocks of gold. They don't want to release them now as the maximum buying in the metal takes place between September and January. Therefore, they expect prices to rise in the months ahead," said Sanjay Kothari, a leading trader.

    Traders say demand in the market is increasingly coming from international customers in the United States and Middle East.
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