Indian dealers remain optimistic about gold sales

Towards the end of 2011 India’s gold and silver imports fell. Upon conclusion of the festival season – which started back in October with the Diwali festival of light, followed by the wedding season – local dealers reported that demand for precious metals had decreased more than expected, owing to weakness in the rupee. Nevertheless, over the whole of 2011 Indian demand for gold jewellery increased by 5 to 7 % in comparison with 2010. Indian dealers remain optimistic for 2012, with locals expecting Indian gold jewellery sales to increase another 10 to 15% this year. This is good news for precious metals bulls, as India is the second largest gold and silver market (in terms of countries) in the world.

During the final months of 2011, the Indian rupee devalued drastically in relation to other important currencies such as the US dollar. Last year the Indian rupee was the worst performing currency among all emerging market currencies. This development was mainly caused by foreign investors withdrawing large sums of capital, which exerted enormous sales pressure on the Indian equity market. Thus, gold jewellery sales were lower than expected during the festival season at the end of last year – which over the last decade has tended to coincide with advances in the gold price, owing to Indians’ buying jewellery – as the rupee plummeted in value, making jewellery purchases that much more expensive for Indians. But yesterday, Mehul Coksi, chairman at Gitanjali Gems – India’s largest jewellery retailer – stated that his company expected Indian jewellery sales to increase by 10 to 15% this year.

According to data from the World Gold Council, during third quarter 2011 India’s jewellery demand fell drastically. Thus, in comparison with the same period last year, local dealers sold a total of 125.3 tonnes – 26% less. But the situation in China has been completely different, as during the third quarter Chinese jewellery demand increased significantly. According to WGC data, in comparison with the same period in the previous year, jewellery sales increased by 13% to 131 tonnes. Demand for gold bars and coins rose by 24 % to 60.2 tonnes.

According to the WGC, last year China became the largest market for gold jewellery, thus surpassing India for the first time in history. Indians are well known for their great fondness for gold and silver jewellery. Although the Chinese government have been able to significantly reduce the country’s inflation rate since the late summer of 2011, Chinese demand for gold and silver continues to increase. Chinese citizens seem to have little faith in the anti-inflationary measures introduced by the communist government. This is one of the main reasons why market observers believe that in coming years precious metal sales will continue to boom in China. This would be of great benefit to gold and silver prices.

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