India's gold investment demand may rise 25-30 percent in the second half of 2010 from a year ago as a shift in preferences from jewellery to exchange-traded funds (ETF), bars and coins gathers pace, the head of a spot bullion exchange told Reuters on Friday.
Indians traditionally buy gold jewellery, which is the most common gift during religious events and an essential wedding present, but buyers are becoming increasingly aware of the benefits of holding gold in other forms.
"Investment will outpace jewellery demand in one to two years as investors have more options like ETF's and coins," Anjani Sinha, chairman and managing director of the National Spot Exchange told Reuters in an interview ahead of a gold convention in Varca in the western Indian state of Goa.ETFs are instruments that trade like shares and are backed by physical holdings of the commodity. Currently, jewellery accounts for 70-80 percent of India's gold demand. Investors, facing inflation, volatile equities and low bank deposit rates in the world's biggest buyer of the precious metal, would raise the share of gold in their investment portfolio to 20-25 percent in two years from the current 10 percent, he said.
"We expect more investments in to gold from retail and high networth individuals," Sinha said. The National Spot Exchange, which started operations in 2008, is a delivery-based spot trading platform that deals in 24 commodities including gold.
India's gold demand, which fell to the lowest since 1997 last year because of a drought, would increase and help imports to rise to 600-625 tonnes this year from 480 tonnes in 2009, he said, adding that the rise in investment demand would be faster.
"There is increased awareness now. People have started realising the fact that coins and bars would protect the value of their investment unlike jewellery," he said. In the April to June quarter, India's investment demand for gold was at 41.5 tonnes, up 7 percent on year, while jewellery demand stood at 123 tonnes, down 2 percent on year, data from the World Gold Council shows.
"The cost of jewellery is much higher, by five to six percent (on top of the price of gold), while in case of bars and coins it's merely 0.01 percent," Sinha said, explaining why the investment segment of India's gold market was expanding rapidly.
In recent years, Indians have increasingly bought gold bars and coins across bank counters and at jewellery shops, purely as an investment.