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With a rich history as the center of the global gold market, India is the world’s leading gold consumer. Although most Indian gold demand is focused on the jewellery sector, investment demand for gold in the region is experiencing substantial growth in the form exchange-traded funds.
By Melissa Pistilli—Exclusive to Gold Investing News
According to a new World Gold Council (WGC) report released Wednesday, India’s appetite for gold is expected to remain robust, returning to pre-economic crisis levels. The WGC says total Indian gold demand reached $19 billion, or 15 percent of the global gold market, in 2009.
“India is the largest gold market in the world and, as such, the likely recovery of local gold demand to pre-crisis levels is of considerable strategic importance to the wider gold market,” said Eily Ong, Investment Research Manager at the WGC.
Although most Indian gold demand is focused on the jewellery sector, investment demand for gold in the region is experiencing substantial growth and creating a market for gold-based exchange-traded funds (ETFs).
In 2007, Mumbai-based Benchmark Mutual Fund became the first financial institution to offer a gold ETF (GBES.NS). Since then, gold-based ETFs have drawn more and more Indian investors away from equity mutual funds, says Debashis Basu and Sanket Dhanorkar of Mumbai-based Moneylife magazine. “Clearly, the equity market is no longer the preferred destination for investors here.” Basu and Dhanorkar report that while equity folios have dropped “an alarming” four percent since March (despite the Bombay Stock Exchange posting 19 percent gains), gold ETFs retail folios have grown an astonishing 65 percent in the same period with inflows into gold ETFs ballooning by an impressive 80 percent.
According to Reuters, India has eight gold ETFs with holdings totaling over 11 tonnes, nearly double from last year.
US QE2 and currency issues focus of G20 summit and gold investors
Gold futures for December delivery reached another all time high this week rallying to $1424.10 an ounce in New York. Prices for the precious metal fell back as low as $1388 an ounce on profit-taking and a rebound in the Dollar, but gold managed to take back the $1400 level Thursday.
Financial instability in the euro zone and unfavorable economic policies in the US are furthering the flight-to-safety buying that has driven gold prices higher and higher this year.
Analysts at SEB Commodity Research expect gold to reach $1600 an ounce in the first quarter of 2011, pointing the finger squarely at the US Federal Reserve’s decision to implement a second round of quantitative easing measures most are unaffectionately calling US QE2.
A recent Bloomberg global poll shows that many in the investment community have a negative opinion of the Fed’s decision with a staggering 75 percent of those polled saying they believe the policy will have little or no impact on high unemployment. Over half of respondents don’t see the move as helpful to increasing US growth in the next year. Rather, the Fed’s action is expected to feed inflation and further weaken the dollar, both gold positive outcomes.
The US Government is facing a lot of criticism from G20 leaders for the Fed’s decision to purchase $600 billion in Treasury Bonds over the next eight months. Russia and China, amongst others, have voiced concerns about the impact such a move will have on their own economies and currencies. Gold bugs will no doubt be watching the wires for any news out of this week’s G20 conference in Seoul, South Korea.