24 Aug 2011


India and China have been largely responsible for gold’s surge in the first half of the year, with the two highly populated nations accounting for 52% of global end-user investment and 55% of jewellery demand worldwide. Year over year growth in consumer demand was 38% in India, in the second quarter of 2011, compared to a growth rate of only 7% for the globe. This is only the beginning of the demand push for these developing economies.
India’s Festival Season Will Push Gold Prices Higher
As the second half of the year progresses, India is entering its festival season, where holidays and weddings, which are culturally linked to purchases of precious metals, can be expected to provide more demand and drive gold prices up. The second half of the year offers 54 days for hosting opportune weddings, according to the India’s major religions, compared with only 44 days in the first six months of the year.
Moreover, Diwali, the festival of lights, an important event for Jains, Sikhs and Hindus is set to occur in late October and is usually a positive driver of gold demand. The day of Dhana Trayodashi, occurring on the 13th day of the second half of the lunar month, is an important day within Diwali for businessmen and families as investment purchases, often in precious metals, are considered especially fortunate.
Records Being Set and Broken
India is set to reach record imports for gold in 2011 with the Bombay Bullion Association predicting up to 1,000 tons to enter India for the year. A record 540 tons was already purchased in the first half of 2011 keeping India on pace to beat the yearly record set last year at 958 tons. India’s consumption purchases grew 60% in the second quarter of 2011 to 267 tons, and investment demand skyrocketed 78% to its second highest quarterly recording of 108.5 tons.
Gold Beats the Alternatives
Gold is an ideal investment for Indians as they are facing a volatile equity market and high inflation. Gold is in its 11th year of positive returns, most of which are double digit increases, and the metal is outperforming almost all asset classes when considering volatility and risk. For the year ending June 30, 2011, depositing cash in a bank earned only 3.5%, equities returned 6.3%, and 10yr bonds yielded 7.94%, according to the World Gold Council. Over the same period gold significantly trumped all of the above by returning a whopping 16.68%.

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