Price dip causes gold rush and shortage in India


Banks Expand Retail Gold Offerings

By Joel Rebello
Daily News & Analysis, Mumbai
Monday, September 25, 2006

MUMBAI -- Demand for gold is expected to rise by at least 25 percent in the festival season and banks are offering gold in various denominations ranging from 5 grams to100 grams.

The festival season, considered auspicious to buy bullion, has coincided with a softening in prices of the yellow metal. Gold prices dropped to Rs 8,885 per 10 grams from an all-time high of Rs 10,665 in May. Analysts tracking the metal attribute the decline to falling crude prices, as gold is considered to be a hedge against high oil prices.

The new retail demand is leading to a crunch in supplies at the level of the main distributors. The Indian representative of the Swiss gold refiner Pamp, Metloy Trading Services Pvt. Ltd., which supplies coins and bars to banks and nominated agencies, has seen its sales of gold coins and bars shoot up from the usual 400-500 kg per week to 1-1.5 tonnes per week over the last two weeks.

"Since gold prices have dipped, gold coin and bar demand has moved up to such an extent that it has created a scarcity in the market. Today gold is not available for ready supply with us, and with other suppliers like UBS and Swiss Credit," says Vijay Kapoor of Metloy Trading.

The demand is being propelled by banks hoping to cash in on craze for the metal.

"Gold is both a commodity and a monetary asset. It is a good investment because the price rises more in stressed times unlike other investments like equity," says KVS Manian, group head, retail liabilities and branch banking, Kotak Mahindra Bank.

Kotak launched gold bars in denominations of 50 and 100 gm on Monday. It expects to hawk about 100 kg of gold through retail sales by the end of the year.

ICICI Bank, HDFC Bank, Corporation Bank, State Bank of India, and Indian Bank are also offering gold coins specially for the festive season with images of gods and goddesses embossed. Corporation Bank expects to sell at least 10,000 coins by the end of December, after selling a similar number in the last one year.

"We are mainly looking at companies that would like to gift coins to their employees or clients in the festive season," says NN Pal, general manager, Corporation Bank, adding that demand has already picked up. Demand is expected to remain strong till December as festivals come one after the other. Dassera will be followed by Ramzan Eid and Diwali, followed by Christmas.

"There was a brief lull in the last 10-15 days as people avoided buying gold due to shraadh. Now that the no-buy period is over, demand is likely to spike," says an official from Indian Bank, which is also offering special coins embossed with images of Goddess Laxmi.

Gold has traditionally been the most favoured form of investment for Indians and the country is the highest private gold consumer in the world. People may also look to buy gold in the next few days if they believe -- as most people do -- that gold prices may not move down much. This could be the right time to buy.

Endorsement of gold is also not lacking star power. Film star of yesteryears Sharmila Tagore and her daughter, Bollywood star Soha Ali Khan, were specially called to launch Kotak's gold offer. Sharmila spoke about how gold has remained valuable across different generations while Soha said that despite the availability of various investment products, gold is still considered good.

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