Gold imports by India, the world’s biggest consumer, may reach a record this year as investors seek a haven against inflation and volatility in stock markets, a traders’ group said.
Imports may be between 950 metric tons and 1,000 tons this year, Prithviraj Kothari, president of the Bombay Bullion Association, told reporters at a gold conference in Kovalam in south India. Consumption in India rose to a record 963.1 tons last year, driving bullion imports to the highest ever at 958 tons, according to the World Gold Council.
Rising Indian imports may help extend a 30 percent rally in gold prices to a record that’s made the precious metal the second-best performer on the Thomson Reuters/Jefferies CRB Index of 19 raw materials this year. Bullion is heading for its 11th annual gain as Europe’s sovereign-debt crisis and concern that the U.S. economy may be slowing spur demand for a haven.
“The equity market is volatile and property prices are too high, driving people toward gold as an investment,” Kothari said. “The rains have been good so far, so we can expect good demand for festival season this year.”
Purchases by India, the world’s biggest user, surged 60 percent to 267 tons in the three months ended June 30, from 167 tons a year earlier, the producer-funded council said on Aug. 18. Investment demand jumped 78 percent to 108.5 tons, the second-highest quarter on record, it said.
Gold for immediate delivery gained $28.30, or 1.6 percent, to settle at $1,852.10 yesterday, after touching $1,878.15, the highest ever. Prices gained 6 percent last week, the most since January 2009, and 14.4 percent this month.
U.S. stocks tumbled yesterday, sending the Standard & Poor’s 500 Index to its biggest four-week loss since March 2009 on concern that the global economy is stalling. Morgan Stanley economists cut forecasts for global growth this year and said the U.S. and Europe are “dangerously close to recession.” JPMorgan Chase & Co. said the U.S. economy may expand less than previously projected in the next two quarters as consumer sentiment drops and the housing market fails to gain momentum.
“Gold is the currency of the world at the moment, with the world convinced that the monetary and fiscal authorities are likely to do nothing right and everything wrong when it comes to resolving the world’s current fiscal problems,” Dennis Gartman, the economist who correctly forecast 2008’s commodities slump, said in his daily Gartman Letter yesterday.
Gold may top $2,000 an ounce by the end of this year as central banks’ purchases and a stalling economy boosts the appeal of the precious metal as a haven, Kothari said.
“Gold may rise to $2,000 or more by 2011 end if the global economy remains the same,” he said. “Central banks are also buying gold, which is positive.”
Holdings in exchange-traded products touched a record on Aug. 8, and central banks are adding to their reserves for the first time in a generation. George Soros, the billionaire investor, cut his holdings in the SPDR Gold Trust in the second quarter as prices rallied, while billionaire John Paulson maintained the largest stake, according to regulatory filings this week.
Global holdings of gold by governments and official institutions such as the International Monetary Fund stood at 30,684 tons last month, according to the World Gold Council. Central banks added 155 tons valued at about $8.18 billion to reserves in the first five months of the year and will be net buyers next year, according to the council.
The precious metal prices may be headed for a drop to $1,725 an ounce as early as next month, according to Jeffrey Rhodes, chief executive officer at INTL Commodities LLC.
“It is definitely in a bubble territory and I don’t think the bubble will burst, but it will deflate a bit,” Rhodes told the gold conference. “Trees do not grow to heaven.”