China has become the biggest gold market in the world displacing India from the top slot. However, Indians’ love affair with gold continued unabated with demand at a total of 975 tonnes in 2013 despite the gold import curbs put in place by the government. Somasundaram PR, World Gold Council’s managing director, India, talks to Piya Singh on what he expects this year.
How will gold prices fare in 2014?
We don’t give a forecast on prices. International prices of gold in the fourth quarter of 2013 were 26 per cent below the same period last year. The average price is 15 per cent below that of 2012. When it comes to domestic prices in the fourth quarter they stood at Rs 25,452 compared with `29,965 last year. So these were down by 15 per cent quarter on quarter while for the full year, prices were lower by 8 per cent. All of this does not include spot premiums. The difference in domestic and international prices was on account of foreign exchange fluctuations. So, the drop in prices in India is much lower than overseas. However, having said that for the first time since 2001, there has been a year on year increase in the growth of gold jewellery in the US.
How will Indians satisfy their thirst for gold in the midst of supply restrictions?
Demand for gold will be met whether it is through the unofficial route or imported jewellery from Dubai, in some form the demand will be met. The issue is at what cost. If the curbs on gold imports stay, the grey market will grow significantly and a lot more duty-free jewellery from Dubai will come in. Almost 140 million have come out of the poverty line and the first asset class they will invest in is gold even if it is a mere 5 gms. It is personal, stays out of the authorities’ views and is cashable. The economy also is changing gears which means that savings will grow and gold will continue to remain important for the middle class. Gold is also seen as a hedge against inflation. The inflation indexed bonds launched have not been a success.
How will demand fare in 2014?
We have retained our estimate of demand in the range of 900 to 1000 tonnes. In 2013, supply was abundant in the first half and since there was a price drop in April many people met their annual requirement.
When do you think the supply curbs will go?
In my opinion, mere tinkering with the duty is not a solution. The government has to address the 80:20 rule. It may announce some changes after the current account deficit is announced, post March 31, 2014. Else, the new government at the Centre will address the issue in its first Budget.
What is your outlook for 2014?
The grey market will flourish if supply curbs are not addressed. Demand will continue to be strong. Some estimates show that there are 18 million marriages every year and these will continue to drive demand. The GDP growth is inching up and the savings rate is strong. So gold will play a part in one’s portfolio of savings. If policy continues with supply restrictions, it will be at odds with what the market requires.