MORGAN STANLEY: Here's What The World's Most Important Gold Consumers Just Told Us

India gold market

Photo: Mamta Badkar

India is the world’s largest gold consumer and accounts for 25 per cent of global gold demand.Naturally, investors closely watch changes in Indian gold demand for their impact on gold prices.

In a new report, Morgan Stanley analysts Sheela Rathi and Ridham Desai say that with the¬†government’s attempts to curb gold demand (because gold already represents 72 per cent of India’s current account deficit), and weakness in the Indian rupee, India’s gold demand could fall 4 per cent in volume in 2012, but rise 4 per cent in price.

Morgan Stanley conducted a survey across 16 cities for urban consumers and eight states for rural consumers. Here are the key findings:

  • Volume demand will fall 13 per cent for urban India and rise 7 per cent for rural India.
  • Gold demand will be split equally among investment. life events (marriage etc) and discretionary consumption. Though life events are more important for rural consumers and urban consumers strike a balance between investments and life events.
  • Households are increasing their demand for gold bars and coins. Rising income is behind the growing share of gold bar holdings.
  • Gold accounted for a third of household portfolio’s surveyed but this is expected to decrease marginally in 2012 in favour of fixed deposits. Safety and better returns were they main reasons they invested in gold.
  • Consumers expect gold prices to rise by 8 per cent in 2012. “Our analysis suggests that if prices rise 10% above expectations, demand is likely to fall 10% instead of declining by 5%. On value basis, the impact is likely to be less than 1ppt. This indicates that households adjust the volumes and not value in the event of sharp moves.”
  • 13 per cent of households have taken loans against gold in the last year.¬†

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