MUMBAI (Commodity Online): India's love for gold has now shifted to paper rather than physical as Gold ETF demand surged by 100% last year, driven mainly by corporate and SME buying.
"The gold collections of ETFs have risen from 15 tonnes in 2010 to 30 tonnes in 2011 (an increase of 100%). The number of corporate portfolios under ETFs has also increased to 5,599 in 2011 as against 3,310 in 2010. For the first time, small and medium enterprises (SMEs) have invested in large numbers”, The Economic Times quotes Amit Mitra of the World Gold Council (WGC)
Indian companies and SME's were seen fleeing to the safety of the yellow metal with all the fears surrounding the European debt crisis and the trend may continue this year given that in addition to the Eurozone issue, political tensions in the Middle-East is rising.
But despite demand from ETF's rising, overall Indian demand has been weak for 2011, with a 7% drop in imports last year, a WGC report shows. This should not come as a surprise considering that gold prices had ballooned last year and the price conscious Indian consumer had opted to stay away from the market. In fact high prices had caused a more than 40% drop in imports for Q4 2011 alone.
However, focussing on Gold ETF's may provide a false picture of Indian demand. A World Gold Council (WGC) report states that India imported around 960 tonnes of gold in 2011. As such, Gold ETF demand at 30 tonnes accounts for only about 3% of total Indian import demand. Add in the domestic supply and the share of Gold ETF's in overall Indian demand comes down further.
But the crucial point to keep in mind is the fact that Indian business are investing in gold. Considering the uncertainty enveloping the global economy, one can expect the trend to continue, and depending upon how worse it gets, corporate demand may one day become a crucial component of overall Indian demand.
