Gold markets in India and UAE: A Perspective

Ashwin Vidhate,
Deputy Manager,
Knowledge Management, NCDEX Ltd.

Indians have a yearning for bullion since the inception of civilization. Gold demand has not only remained high but has shown rise in the recent period especially since 2001 as reflected in the increase in volume of imports. In India, gold in particular is seen as a symbol of security and as a sign of prosperity. Indian consumers regard gold jewellery as an investment and are well aware of gold’s benefits as a store of value. Gold is also recognized as a form of money in India, a tradable liquid asset. It is one of the foundation assets for Indian households and a means to accumulate wealth. It could be seen that despite the recent incessant price rise in the last two odd years which took place in the background of worsening of financial and economic scenarios initially in the US, followed by the debt problems in the European countries, even then there has been no signs of abatement in the domestic demand for gold, thereby, implying that investment in gold is becoming more price inelastic.
The gold market in UAE and especially Dubai which is known as the ‘city of gold’ is considered as the fastest growing gold center of the world. Here around 90 per cent of gold market is plain gold jewellery and demand for gold is usually seasonal in nature. The gold consumers in UAE typically buy on an average 30 gms of gold annually compared to the global average of less than 1 gm. In UAE, around 48 per cent of total gold is for gifting while 28 per cent is for self consumption and more than two-third of the population buys gold at least once in the year. The domestic gold prices usually mirrors international gold prices while investment in gold is more or less price inelastic.
India’s gold production continues to be minimal in nature. Almost all of the India’s gold demand is met by imports. In the recent years, there has been sharp increase in the India’s gold imports which has raised concerns about its implication for trade deficit. As per the DGCI&S data, the imports of gold increased from US $16.7 billion during 2007-08 to about US$ 56.2 billion during 2011-12, growing at a CAGR of around 35 percent and clearly showing India’s penchant for gold. Besides buying physical gold, the other investment options for gold are gold Exchange Traded Funds (ETFs), Indian Post gold retail programme which sells certified gold coins of 99.99 per cent purity in 0.5 gram, one gram, five gram and eight gram denominations, and gold-linked microfinance scheme which aims to make good quality gold accessible and more importantly, affordable to daily wage earners like agricultural labourers, vegetable vendors, fisherwomen etc, who comprise the Bottom of the Pyramid (BOP) in the Indian population segment.

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