Gold demand Likely to Remain Robust This Year Too.

Demand for gold was strong in India during 2010 despite an escalation in prices as consumers saw the yellow metal as a safe investment which could protect them from economic uncertainty. The prices climbed as much as 30% to touch a record as dollar weakened. The robust demand is expected to continue this year.

India’s imports surged in 2010

After a decline in imports in 2009 due to the impact of the global economic recession, gold’s inward shipment picked up in 2010. Against 559 tonne in 2009, last year’s import is estimated to be around 700 tonne. As most Indians invest in physical gold, the imports are predicted to reach last year’s level especially if the prices dip below Rs 20,000 per 10 gm.

Domestic consumption going up

India and China continue to be the biggest consumers of the precious metal. Investors are keen to buy gold as a hedge against inflation. As most investors believe that gold prices will keep going up, they are not hesitant to buy at the current prices. The demand for gold jewellery showed over 70% rise last year. The World Gold Council reckons that 60% to 65% of the overall gold demand in India will come from the rural markets. Most of the jewellery chains are now expanding to smaller towns, especially in south India, to cash in on the new trend. The volumes in exchange-traded funds are also steadily climbing up.

Improved dollar may limit gold gains

Last year, gold prices reached a record high of $1,431 per ounce helped by a weak dollar and the poor state of the US economy. This year, the improved dollar may depress gold prices initially. Last Friday, the price stood at $ 1,359 per ounce. Standard gold prices in India fell to Rs 20,370 per 10 gm. A market prediction is that the prices could hover in the range of $1,270 and $1,300 per ounce by the end of March. But this could be just a temporary phase as the economies in the US and Europe are yet to recover fully. The currency volatility will also help sustain investor interest in gold. So, gold prices will continue to be bullish though they may not peak to a new high.

Global prices may jump on low supply

Globally, fears of low supply could push up the demand for gold in the long run. Currency volatility and rising inflation may lead to more gains in the coming days. The timing of these gains will depend largely on the changes in the interest rates in the US, China and Europe.

Source : economictimes.indiatimes.com