Last Updated : 31 August 2010 at 16:10 IST

Gold to gain from India’s growth story

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By Geena Paul
LONDON (Commodity Online): India’s impressive economic growth of 8.8 per cent during the quarter ended June on the back of robust manufacturing gains has given some stimulus to the global bullion market.

India is the biggest consumer of yellow metal in the world and a good growth in Indian economy will give more money to people to spend. This will result in many people buying gold jewellery during the coming festival season. Moreover, the news of good growth in economy will bring more confidence among gold traders and they are expected to stock up more in the coming festival season in India.

India’s festival season started on August 24 on Raksha Bandhan and Janmashtami is scheduled on September 2. After that India will witness its biggest festival of Diwali in November. During this period Indians buy gold as they believe it as an auspicious thing to do. Traditionally, Indians buy gold on every occasion. In the recent past, the increasing prices had kept buyers away from jewellery shops.

However, the rise in India’s growth will send a positive vibe to the market now.

According to reports, India’s manufacturing expanded by strong 12.4 per cent in April-June, 2010 against a mere 3.8 per cent growth rate in the same period last year. Construction too grew by 7.5 per cent compared to 4.6 per cent.

The government expects economy to grow by 8.5 per cent this fiscal. Though the GDP numbers for the April-June quarter are higher than that of 8.6 per cent in the previous quarter, they lag expectations of 8.9-9.4 per cent forecast by various experts. The last time the economy grew at a faster clip was in the last three months of 2007 when it expanded 9.7 percent.

Despite falling slightly from historic highs earlier this year, the gold remains a safe and attractive investment for buyers still. Analysts expect the price to stay strong for the rest of the year, thanks in part to accelerating demand from India and China.

Again, demand is rising in other parts of the world. The World Gold Council expects demand to remain strong for the rest of the year, due in part to growing demand from China.

Beijing has recently moved to liberalize rules so citizens can buy gold. It is also allowing domestic banks to buy and sell gold to encourage more liquid trade. Some investors believe China’s entry into the gold market could drive prices above $1300 an ounce.