India’s gold obsession wows world

India’s golden move as far as International Monetary Fund’s (IMF) gold buying has won the country accolades from across the globe. Several countries and analysts have praised the move and opined that the Manmohan Singh-led government has displayed its strength before the world that India is a country to reckon with by bagging the 200 tonnes of IMF gold earlier this month.

The move by India caused a stir in the bullion market and the gold prices soared to $1130 per ounce in the markets on Monday.

And many analysts have expressed their views that the yellow metal will cross $2,000 per ounce in the coming months.

There is another story behind the India’s move. In 1991, India’s socialist government had secretly shipped 67 tonnes of gold to the Bank of England under a deal with the IMF to avert a balance-of-payments crisis. At that time the country was criticized for the move and the government faced a lot of embarrassment in the global media.

But the same media is praising the country for its recent move to buy the 200 tonne IMF gold.

The surprise move by the Reserve Bank of India pushed the government’s gold holdings to the 10th largest in the world from the 14th.

According to an interview appeared in Canadian Press, Himadri Bhattacharya, executive vice-president at Tata Capital in Mumbai, said, “to the outside world, it signals a show of strength and display of quiet confidence.

The former RBI official doesn’t believe the gold purchase, worth $6.7 billion, was the outcome of any strategic thinking or vision on the part of the authorities.

“It just happened,” Bhattacharya told Canadian Press. The country’s insatiable appetite for gold has made it the largest retail market for the metal, consuming more than 700 tonnes in 2008 alone.

While there are no authentic estimates on how much gold is in the country, Bhattacharya told Canadian Press gold held by Indian households and other private groups would be close to 25,000 tonnes.

In India, gold is the most favoured gift for any occasion. It gives apparent financial security outside an economic system controlled by private interests and centralized, government authority.

Banks, governments and currencies may come and go, but gold will still be gold.

Clever marketing by the WGC and numerous retail schemes enticing consumers have played a major part in boosting the demand for gold in India in recent years.

Also feeding the situation are new jewelry stores that have sprung up in cities small and big across India, said the Canadian Press report.

Experts have also noticed a subtle change in buyer attitudes. It’s not just jewelry anymore. Consumers are going for bullion.

Till a few years ago, the gold ornaments bought by Indian families on the occasion of family marriages and festivals were for both adornment and investment purposes.

The distinction between adornment demand and investment demand was blurred. Now, India is a well-defined and well-entrenched market for retail investment products - gold coins and gold ETFs (exchange-traded funds).