Poor monsoon in India spurs global decline in gold demand

By siliconindia   |   Tuesday, 17 September 2002, 19:30 IST
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Rising prices, weak rural income due to poor monsoon and a less buoyant economy continued to hurt gold demand in the country during the second quarter of 2002 (April-May-June) and it declined by 41% compared to a year earlier. World Gold Council in its Gold Demand Trends report for the period said, "The year-on-year fall in consumer demand in the second quarter was less severe than in the first quarter but still reached 41%." A sharp fall in demand in India, a market particularly sensitive to price volatility, accounted for much of the decline in total global demand which was 14 percent below what it was a year earlier. “A large part of the overall decline in jewellery purchases was due to a 37% percent fall in India, the world’s largest gold consumer. This was mainly due to the rise in the rupee price of gold during the quarter.” ”Indian demand is particularly sensitive to price movements; both trade and consumers hold back from purchasing in periods of price volatility.” WGC said rising rupee prices deterred demand for fresh gold jewellery apart from weak rural incomes and a less buoyant economy, which were secondary factors for the fall. While the prospect of price rises and geopolitical situation - notably the Kashmir crisis - were favorable to investment, the rise in price also encouraged dishoarding so that net investment was sharply down on year earlier levels, it said. During the first two months of the quarter, the consumer demand recovered to some extent, aided by a vibrant wedding season, auspicious days for gold buying and periodic bouts of jewellery purchasing when the price stabilized for short periods, it said. Industrial demand in all East Asian countries reported was also universally higher than a year earlier, suggesting that recovery in the electronics sector could be under way. Global retail investment demand was also down in comparison to the same quarter of 2001. Political and economic concerns underpinned a strong increase in some countries but the rise in the price of gold also encouraged dishoarding in others. Nevertheless, following a strong first quarter, retail investment during the first six months of the year was still 12% higher than in the first half of 2001. Although overall gold demand was lower in volume terms, the dollar value of purchases was virtually unchanged at $7.3bn. This was a consequence of the rise in the US dollar price of the metal, which averaged $312.67 per oz for the period. That was $45 per oz, or 16.8%, higher than in Q2 2001, it said.