Raksha Bandhan to unleash gold boom

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India is on the cusp of a gold boom this week. With the onset of festival season in India on August 24 (Raksha Bandhan), bullion market is set to boom as demand for the yellow metal will shoot up in the country.

On August 24, India will celebrate Raksha Bandhan, an auspicious occasion to celebrate brother-sister relation, and demand for gold will see a major jump before this as brothers and sister buy jewellery to gift their siblings.

The festival season in India will start next week and continue till November (Diwali). Gold sales in India generally decline around 60 per cent during June 16-August 15, as retail consumers abstain from fresh purchases.

This time around, the high gold prices may keep a few buyers away from jewellery shops but they may go for diamonds also now as the stones have become more affordable for the Indian middle class.

Gold imports in India are estimated to have declined by 50 per cent to 30 tonnes during June-July, compared to approximately 60 tonnes in the comparable period last year.

Since the main gold consuming class, farmers, require fresh money to buy high-yielding seeds during the kharif season, scrap sales generally increase at this time of the year. As a result, scrap availability has almost doubled.

Experts estimate that India's gold demand will reach 1,000 tonnes within the next three years. And the anticipated Indian gold consumption of 1,000 tonnes will represent 42% of total new world supply.

Considering this never-ending appetite of Indians for gold, the government is all set to go for a gold hunt now. Concerned over its increased dependence on bullion imports, government of India has asked Geological Survey of India ( GSI ) to tap the countries potential to dig out gold and diamond reserves spread over several states.

India is estimated to have 20,000 tonnes of gold and diamond reserves spread over several states. The Indian government has asked GSI to explore additional reserves of gold and diamonds in Andhra Pradesh, Karnataka, Madhya Pradesh, West Bengal, Rajasthan, Bihar and Chhattisgarh.

India has been the top importer of gold for several years and the Indian government is concerned over its over-dependence on imports for its bullion needs. The concern increased during the recession time when prices of gold shot up beyond $1,000 per ounce in the international markets. Moreover, gold has become the safest have available for investors at present.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Commodities

Referenced Stocks: GSI

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