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Gold Demand in India Down, ETFs Follow


Gold prices in India have significantly dropped, marked by the end of the fiscal year. As a result, growth of assets under management for gold exchange traded funds in India have dropped 18%.

“Relative economic tightness on account of slowdown has also led to a decline in net gold consumption,” said Chirag Mehta, of Quantum Asset Management Company, in a Reuters report.[Gold Hit by 'Steady, Large' Outflows From Bullion ETFs]

India is the world’s largest buyer of gold. Gold prices have dropped 10% from a late November peak in India. Investors preferred debt instruments over the precious metal due to sagging prices, reports Siddesh Mayenkar for Reuters.

Assets under management for the 14 gold ETFs trading in India have grown about 18% in the year prior to March 2013. Price expectations are a big influence for asset growth in the ETF market. Growth of gold ETFs in the next fiscal year will depend upon price expectations in the short-term. [Gold ETFs See Record Cutback in Bullion Holdings]

“People are now very skeptical to put their money in gold as prices are likely to come down by another 8%-10% in coming months due to signs of improvement in [the] U.S. economy,” said Hareesh V., a senior analyst with brokerage Geojit Comtrade Ltd.

Physically-backed ETFs such as the SPDR Gold Trust (GLD) have had about $7.7 billion in net redemptions this year, the most for any U.S. listed ETF, according to Index Universe. [Special Report: Alternative ETFs]

GLD fell more than 3% in Friday’s gold sell-off. [Gold ETF Lowest Since 2011]

Goldman Sachs announced Wednesday that the gold price forecast has been lowered, to $1,450 per troy ounce, 9% lower than the original forecast, reports Debiprasad Nayak for The WSJ.

SPDR Gold Trust

ETFs, GLD, India, Gold

Tisha Guerrero contributed to this article.

Full disclosure: Tom Lydon’s clients own GLD.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.