India's rich throng to gold

From Mineweb:

As concerned investors look for a hedge against inflation and a weakening dollar, even slight dips in the high price of the yellow metal are being seen as a buy signal.

Author: Shivom Seth
Posted: Thursday , 07 Oct 2010

MUMBAI -

It is a gold rush the likes of which the country has not witnessed in a long time. Fears of double dip recession in the US and the subsequent global fallout of such an event has caused high net-worth individuals in India thronging to precious metal counters.

"The way this class (read wealthy investors) responds to a fear situation is by buying bars and kilos of gold,'' said A L Adjaniawala, precious metals analyst at KJMC Capital, a Mumbai-based research firm. "Given the firming up of bank deposit rates in India, consumers in the world's biggest buyer of the precious metal are keen to increase the share of gold in their investment portfolio to 20%-25% over the following year, from the current 10%-12%,'' he added.

Last year, bullion gained 34% and investors in India had realised the benefits of holding the yellow metal. With investors currently seeking a hedge against inflation and a weakening dollar, even a slight price drop is an opportunity that cannot be missed.

On Tuesday, Comex gold soared to an all-time high against a weakening dollar. Last Friday, the dollar fell to the lowest level since January, against a basket of currencies, partly on speculation that the Federal Reserve would ease the monetary policy to stimulate the US economy.

Data had showed that growth in US manufacturing had slowed. Inflation too was subdued; reason enough to spike the Indian market.

"Not just the richie-rich, even small investors have started buying gold coins. Most of them say they collect it for their children,'' said Harmesh Arora, director of NIBR Bullion, a Mumbai-based gold refinery that sells coins.

He adds, the corporate sector too has started gifting coins to their staff and dealers, "Knowing its intrinsic value, many retail stores are giving a gold coin as a free gift with the purchase of high value products, especially in the forthcoming festive season.''

Shwetambur Shah of Choksi Vimalkumar, a jeweller in Mumbai's Kalbadevi area noted that Indians traditionally buy gold jewellery during festival time. "It is the most common gift during religious events and an essential wedding present, but buyers are becoming increasingly aware of the benefits of holding gold in other forms too. So, from coins to bars, several people are now coming in asking for larger quantities of gold,'' he added.

However, the high price is playing spoilsport in some areas. An official of Riddisiddhi Bullions, a large wholesaler in Mumbai, said sales may fall slightly before they pick up again. "Usually by this time, most of our stocks get lifted. This year, people are nervous about the high price,'' he added.

In the April to June quarter, India's investment demand for gold was at 41.5 tonnes, up 7% year-on-year, while jewellery demand stood at 123 tonnes, down 2% year-on-year, data from the World Gold Council has shown. Sunil Solanki of M H Karbawala & Co said the retail rate of gold jewellery at Rs 19,700 was too high for the normal consumer to jump in. "It is a wait and watch policy that is being adopted by most people. We do receive enquiry sales practically every hour on whether the rate has reduced, which would entice people to come in and buy some jewellery for the Navratri festive season ahead,'' he added.