MUMBAI (Commodity Online): By now Indians have learned to live with the higher prices of gold and they don’t anymore expect the gold prices to fall below $900 per ounce.
With the dawning of the reality, Indian buyers are set to return to gold jewellery shops and the physical buying will pick up momentum very fast. That is what market analysts are forecasting now.
And, gold has confounded expectations by comfortably consolidating above $1,000 an ounce, and traditional buyers in the jewelry market are facing up to the reality that higher prices are here to stay.
Indians will be ready to buy if gold corrects but gold below $900 again is almost an impossibility that is clear to any Indian buyer now.
Some gold investors have fretted about the decline in Indian gold bullion imports, India is the biggest importer of gold bullion, which are expected to fall below 300 tonnes in 2009, down from 396 tonnes in 2008 and more than 700 tonnes in 2007.
But despite the strength in gold prices this year, India’s gold sales during the festival period of October 12-19 actually rose 5.7% from a year earlier to 56 tonnes despite near-record prices in rupee terms.
Analysts say they expect gold prices to gradually march higher in 2010, regardless of periodic corrections. A rise in investment demand on inflation expectations and for currency diversification purposes has more than offset the weakness in the jewellery sector with overall gold demand in the first half at 1,744 tonnes, compared with 1,520 tonnes in the first half of 2008.
This may not immediately result in higher imports as scrap supply will ensure sufficient supply for now, but any dip in gold prices is likely to lead to renewed Indian imports.
Physical traders in Singapore also expect buying to pick up strongly on dips below $1,000, a level where buying dissipated in early 2008. Indian buyers never buy into rallies. There is always a lag time before they will be comfortable with higher prices.
According to GFMS, global jewellery demand held fairly steady during the last bull run, dropping only 10% to 2,404 tonnes in 2007 from 2,680 tonnes in 2002, despite prices increasing by 200% over the same period.
Jewellery demand slumped to 2,186 tonnes in 2008 and looks likely to come in below 2,000 tonnes in 2009, with the first half down 22% on year at 765 tonnes, but the timing suggests this has more do with the global recession, with prices rising only 18% from the start of 2009.
A positive pattern was evident during China’s golden week holidays when jewelry demand was stronger than in previous years.
