Gold demand to fall 13% in urban India in 2012

Demand for gold in urban India in terms of volume is expected to drop as much as 13 percent in 2012 when compared to 2011, a survey done by Morgan Stanley reveals.

Demand for India in terms of volumes is expected to see a 4 percent drop while that is rural areas is going to rise by 4 percent. In value terms, however, the gold demand might go up by 4 percent for the whole year on a whole. India in the largest consumer of gold globally and a fourth of the world’s gold demand comes from this single country.It accounts for almost 2.3 percent of our GDP and forms 72 percent of India’s current account deficit.

Here are some of the main findings of the survey:

1. Gold demand in India is equally split among investment, life events and discretionary consumption. Life events are more important for rural households, whereas in urban India, life events and investments find a fine balance.

2. Households are increasingly channeling their investment demand through bars or coins.They project a 2-3 percentage point increase in share of bars and coins this year. World Gold Council says bars and coins have made 39 percent of total investment in 2011, a record high.

3. Gold accounts for one-third of the household portfolios Morgan Stanley surveyed. They are likely to decrease this marginally in 2012 in favor of fixed deposits. Households cite better returns and “safety” as the key reasons to invest in gold.

4. Households are expecting gold prices to rise by 8 percent in 2012. An additional 10 percent rise would however lead to a proportionate decline in volumes, Morgan Stanley says. The survey suggests that the value of gold demand is only marginally affected by prices which in their own words is debatable.

5. About 13 percent of the households have taken loans against gold in the past year, with a slightly greater prevalence in rural India.

(curtsey : first post)

Rupesh Yatesh Dalal
Head Research Department

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