The Indian consumer's affinity and appetite for gold has continued over the years and statistics from a report published by the World Gold Council (WGC) indicate that in 2009 Indian demand accounted for 15 per cent of the global gold market.
The WGC report, titled “India: Heart of Gold”, addresses recent developments in the market in the context of the revival of Indian demand for gold in 2010. The report indicates that in 2009, total Indian gold demand reached $19 billion (Rs.97,400 crore), which accounts for 15 per cent of the global gold market.
Over the past ten years, the value of gold demand in India has increased at an average rate of 13 per cent a year, outpacing the country's real gross domestic product (GDP) by 6 per cent, inflation by 8 per cent and population by 12 per cent.
Gold jewellery demand in India, the world's largest gold jewellery market, rose 67 per cent year-on-year in the first-half of 2010.
Over the same period, the average domestic gold price surged to almost Rs.52,800 an ounce (Rs.18,625 per 10 gram) before hitting a new high of Rs.60,460 (Rs.21,325 per 10 gram) on October 15, 2010.
Despite higher gold price, market sentiment remains positive, especially with the local gold market also benefiting from the strengthening of the rupee against the U.S. dollar.
In India, gold often represents a large percentage of the family assets and during the first six months of 2010, the Indian retail investment market was one of the strongest in the world. Demand increased substantially to 93 tonnes in this period (from 25 tonnes in the first-half of 2009) and accounted for 25 per cent of domestic gold demand. The recovery in Indian demand for gold investment has stemmed from an increased appetite for capital preservation among local investors, as well as for gold's properties as a dollar hedge, heightened risk aversion and higher inflation expectations.
WGC estimates that India owns over 18,000 tonnes of above-ground gold stocks worth about $800 billion at today's gold price and representing at least 11 per cent of global stock. This is equivalent to nearly half an ounce (over 15 gram) of gold ownership per capita, a figure which is significantly below consumption in western markets, representing scope for additional future growth.
The report says that the country at present has one of the highest savings rates in the world, estimated at around 30 per cent of total income, of which 10 per cent is already invested in gold.
According to Eily Ong, Investment Research Manager, WGC, “India is the largest gold market in the world and as such, the likely recovery of local gold demand to pre-crisis levels is of considerable strategic importance to the wider gold market.”
“Gold is an integral part of Indian society and a foundation of wealth and savings in India.
As consumers have adjusted their price expectations upwards, a further rise in gold jewellery and investment demand is anticipated and this trend is expected to continue over the long-run as local investors are buying gold driven by wealth accumulation motives.”