Investors, speculators, hedgers and consumers who sold their gold stocks to partly set off losses in the financial markets will start replenishing within six to eight months, says Ajay Mitra, managing director - Indian sub-continent, World Gold Council.
Gold offtake slowed in the first quarter of 2009 due to the global financial crisis. In January, say market participants, India imported 20 tonnes of gold. With global financial markets worsening since, imports in February and March remained almost nil.
The financial markets have started recovering and so has the rupee against the US dollar. This means investors in the equity market will started using a part of their investment or income for gold as an asset class which may rescue them, like last year, at a time of financial crisis.
Gold is bought today with three purposes; as a hedge against inflation, as an asset and to store value to cash on at a time of financial difficulty. According to Mitra, investors of the stock market rescued themselves partly by selling gold holdings. As a consequence, used gold sales increased substantially in the first quarter of the current calendar year.
"The global financial crisis was the only factor which hurt consumers' sentiment badly and not prices, which is evident from the gold sales on the occasion of Akshaya Tritiya," said Mitra.
On Akshaya Tritiya, April 27, considered the most auspicious day for buying gold, despite the price being 30 per cent higher than on the same day last year, sales were Rs 7,280 crore (Rs 72.8 billion), against Rs 6,359 cr (Rs 63.59 billion) on the day in 2008. However, sales were 45 tonnes, cpmpared to 48.9 tonnes last year.
Standard gold on the day was quoted at Rs 14,830 per 10 g in Mumbai.
Once consumer demand picks up, scrap sales will be addressed. Scrap sales since December 2008 had surged to an estimated 500 kg a day against 100 kg in normal circumstances.
Meanwhile, the sector requires three major policy initiatives from the government which may boost consumers' morale, Mitra said. The government should liberalise credit for exporters even for short periods, traders should be allowed to use their gold holding with banks, which they are barred from doing, and non-banking finance companies and co-operative banks should be permitted to retail gold.
If these initiatives are facilitated, gold sales will recover to the normal level, he added.
India's gold sales were 402 tonnes in 2008, a decline of 47 per cent from last year. In the first quarter of 2009, gold sales are likely to take another big hit, due to less consumer spending on luxury goods, including jewellery items.
During the first quarter of 2008, gold sales in India declined by 50 per cent, at 102.1 tonnes from 202.2 tonnes in the comparable period last year.
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