Outlook for 2012 will depend on recovery of economy: WGC

It was a lacklustre first quarter for gold in the country with World Gold Council figures, released on Thursday, showing a decline in demand by 29 per cent in volume and 3 per cent in value terms over the corresponding period of 2011.

Total demand in the January-March 2012 period was 207.6 tonnes, which was 83 tonnes less than the consumption during the corresponding quarter last year, according to the Gold Demand Trends (First Quarter 2012) report of the Council.

In value terms, the demand was Rs.56,650 crore, whereas, in the first quarter of last year, it was Rs.58,630 crore.

(The average price of 10 gram of gold was Rs.27,287 in Q1 2012 as against Rs.20,176 in Q1 2011).

Addressing presspersons here, Ajay Mitra, Managing Director (India and the Middle East), World Gold Council, said a number of factors affected the demand, including a new tax on gold jewellery, increases in import duty and weakness and volatility in rupee.

From August [2011] the country did not have a fantastic growth, there were agitations, policy paralysis. These had impacted the sentiment. Under such circumstances, consumers tended to be cautious, resulting in softening of demand. The increases in customs duty had disincentivised banks and channelising agents from holding large inventory. De-stocking was happening, he added.

Emphasising that fundamental of gold remained strong and the precious metal continued to be a “hedge against inflation, most liquid asset, and protects your wealth,” Mr. Mitra said the previous drop in demand in the first quarter was in 2009 when it slumped to 46.5 tonnes from 137.9 tonnes in 2008.

Despite the blips, long-term demand would continue to be pretty robust, he said, adding that the outlook for the remaining three quarters was going to be very cautious. A lot would depend on how the country's economy recovers.

A release on the gold demand trends said: “There has been increased take-up of gold ETFs, marking a shift in the buying patterns of urban consumers, who realise that gold is an essential foundation to a portfolio.” The assets under management of the ETFs, Mr. Mitra said, was Rs.10,218 crore last month as against Rs.4,800 crore in April 2011.