Gold demand set to pick up in 2013 on the back of stabilizing prices

After a strong performance in July-September, gold demand in India is likely to go up in the coming year due to stabilizing prices of the yellow metal. According to analysts, gold prices are likely to settle higher due to better economic growth expectations and expected rate cuts from banks.

27 Dec, 2012, 08.29AM IST, TNN
The Economic Times

After a strong performance in July-September period, gold demand in India is likely to go up in the coming year on the back of stabilizing prices of the yellow metal. According to analysts, gold prices are likely to settle around Rs 29,000 to Rs 32,000 per 10 grams in the near term due to better economic growth expectations and expected rate cuts from banks.

While a host of international factors such as the US fiscal cliff will impact prices of the precious metal, analysts say a stable domestic environment will ensure less volatility in gold prices, at least during the first half of the coming year. "Fiscal cliff is currently the most important event. If the issue is not resolved, it will lead to a gain in gold prices," Gnanasekhar Thiagarajan, director, Commtrendz Research said.

Gold prices in the capital fell by Rs 220 to Rs 31,000 per 10 grams on Wednesday. In Mumbai, gold prices stood at Rs 30,700 per 10 grams. Prices in international markets too fell 0.4% to $1,651.62 an ounce. "In 2013, markets will get more focused on demand. Prices could be slack to bearish in the first half. Overall, the outlook for gold prices is likely to remain firm due to expectations of interest rate cuts," said Thiagarajan.

With rupee expected to remain at 49-50 levels against the dollar, experts say gold prices are likely to rally after August 2013. "Even Rs 35,000 per 10 grams is an easy level to reach in the second half. In India, gold prices always witness a spike around August and then continue to go up till December. But, it will settle at RS 32,000 per 10 grams level eventually," said Ashok Mittal , CEO, Emkay Commotrade.

With most central banks increasing their reserves of gold, experts say the increase in demand will be a global phenomenon. Market watchers, however, say demand will remain consistent throughout next year as people have now adjusted themselves to the increased prices of the yellow metal. "In India, record prices have always been followed by record demand. This also happened in 2011. Physical demand will continue to pick up steadily," said Jayant Manglik, president — retail distribution, Religare Securities.

Average gold price in India has increased nearly 14% in 2012 as compared to the previous year. Compared to 2010, average gold prices have increased by over 60% in 2012. Retailers have already begun stocking up as they expect sales to nearly double in the coming year. "Gold prices now seem to be gaining stability. With prices coming down, demand has picked up in the last few weeks," Sanjeev Agarwal, CEO, Gitanjali said.

Gold demand in India remained widely unstable in 2012 due to several factors ranging from increase in excise duties to a sharp depreciation in rupee, as well as uncertainty in the global economic scenario. Last month, RBI also imposed a ban on banks from advancing loans to customers for purchasing gold in any form in a bid to curb gold consumption in the country.

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