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28 May, 2009 06:53

Indians still line pockets with gold despite crisis

The price of gold has surged in 2009. Initially India, the world's biggest buyer of the metal, suffered from a drop in demand, but now it's back and the golden nuggets are once again on the menu.

The lustrous metal is ingrained in Indian culture. Ornaments or coins are a must at ceremonies, with weddings a jamboree of gold on display. However, with the global economy in turmoil, the price of gold has gone up, which initially caused a drop in demand in India – the largest consumer of gold in the world.

Chetan Bansal, managing director at Bansalsons Jewellers said:

“Fluctuation in price is bad for business. But when gold prices settle, it will again go back to the same flow.”

February and March saw no imports of gold to the country, but it is difficult to keep Indians away from buying the precious metal for long. April saw a resurgence of gold purchasing, and a 14% price rise compared to the same time last year. People in India see it as a safe, long-term investment, and buyers seem to be accepting the new price.

“Our investment in gold will carry on. I think it is too well entrenched in tradition to disappear,” said Lalit Khanna, the Managing Director at Escort Mutual Fund.

Many have pointed out that gold investment there is not only about business, but also will always be part of the Indian way of life.

“All Indian women are attracted by gold, whether rich or poor. Whether they can afford less or more, all women have gold and they are drawn to buy more,” said gold dealer Satish Agarwal.

Apart from tradition there are some who invest in gold for the flexibility and liquidity it offers.

“I may have land in Delhi worth millions. But if I get stuck in Honolulu, I won’t be able to raise even 10 Rupees. But if I have gold, I can sell it for cash straightaway,” a businessman says.

There have been hints that the International Monetary Fund and Central Banks may sell their gold reserves to raise funds in these hard times. Whilst some fear this could lead to excess supply and a fast fall in price, others believe that the Indian buyers’ appetite for gold will save the metal from losing value too rapidly.

Anuj Gupta, Senior Analyst at Angel Broking said:

“If the IMF sells gold in the market, there could be a downward pressure on prices and the market may come down. But if we see the Indian scenario the mindset is such that as soon as the gold price falls people start purchasing.

In this country, the precious metal remains a barometer of financial health. Even in hard times, Indians never part with their gold, except as a last resort. With the Indian economy registering 7% growth, there is reason to expect gold will still glitter in the future.