If 2012 Is Like 2009, Then Indian Gold Demand Could Soar And Prices Will Surge

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Photo: Priyambada Nath via Flickr

Gold prices are largely impacted by consumer trends in India, the world’s largest gold market. But the recent slowdown in Indian gold consumption could just be a short-term, cyclical phenomenon according to the Financial Times

Pointing us back to 2009, FT’s Jack Farchy writes that the Indian economy’s slowdown three years ago saw gold demand plunge 77 per cent year-over-year in Q1 2009. Full year gold demand fell 19 per cent:

“Something similar is happening today: the Indian economy is suffering, the rupee is sliding and Indian gold demand has dried up. The country’s economy registered its slowest quarterly growth in nine years in the first three months of this year.

…That means that when the Indian economy recovers, gold demand should bounce back with a vengeance. In 2010, Indian gold consumption soared 74 per cent to a record high of 1,006 tonnes, GFMS estimates, as pent-up demand was unleashed.

A similar rebound, later this year or in 2013, could be just the stimulus gold needs to regain its previous peaks above $1,900 a troy ounce.”

Farchy argues that the Fed’s refusal to kick off another round of quantitative easing in February saw gold lose favour with investors. A hint of further easing at today’s FOMC meeting could see some support for gold.

But a rebound in Indian demand later in the year could be “truly explosive” for gold prices.

Read the entire piece at Financial Times >

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