Gold demand dips as stock markets surge.

KOLKATA: The bull-run that took the Nifty index over the 8,000-point mark proved not so good for gold, the preferred investment option at the time of economic uncertainties.

Accordingly, demand for gold bars and coins that are bought by investors is set to weaken further, as stocks gain and the economy looks set for a turnaround, say bullion dealers and gold traders.

Investment demand for gold has dropped by 67% from a year earlier to 49.6 tonne during the second quarter of 2014, according to the World Gold Council. In the third quarter through September, demand is expected to fall by at least 70% from 43.5 tonne in the same period of 2013, traders say.

"There is very little demand for gold coin and bars in the market.Investors have lost interest in the yellow metal as returns from the stock market have improved significantly," Prithviraj Kothari, vice-president of the Indian Bullion & Jewellers Association told ET. "Also, with a stable government and the economy showing signs of recovery, it is expected that investors will step up their investments in the stock market. Gold is not going to attract their attention," he added.

A study by the All India Gem and Jewellery Trade Federation indicates that there was a drop of 70% in bullion and coin sales during the first five months of the current fiscal year beginning April. "Globally investors are sideways. Gold sentiment is weak. Global gold prices will not appreciate unless a war breaks out in those areas where geopolitical tension has escalated," said Haresh Soni, chairman of the federation. "In India, investors are waiting for a reduction in import duty before they make some investment."

India levies a 10% import duty on gold, one of several measures authorities took in the past couple of years to reduce imports of the metal that were putting pressure on the country's CAD. "It seems that in future, we will be required to import around 650 tonne of gold for manufacturing jewellery," Soni said. However, Mehul Choksi, chairman and managing director of Gitanjali Group said that overall demand for gold will be witnessed in from September-end.

According to Soni, however, household gold is entering the market for converting into new designs that are being used for different occasions and festivals. Though this is largely an urban phenomenon people from rural India, where this year's weak monsoon is expected to affect gold consumption, are selling some of their household gold.

"We receive about 2-2.5 kg of scrap gold daily on an average," said Jitendra Jain, director of Jugraj Kantilal & Co.

Despite all this, gold smuggling is still rampant in India, as the 10% duty on gold offers smugglers an attractive profit.

Smuggled gold in the country will be around 200 tonne this year, the World Gold Council had predicted.

Seizure of smuggled gold in the first three months of the current fiscal year is already more than 50% of the total during the entire fiscal 2014.

Source : economictimes.indiatimes.com