GOLDExpexted Demand in China and India

Summary

world Gold Council reported to have a rise in Gold demand in India and China.
Both countries shown some good growth past year despite of recession.

Analysis

It is estimated that gold consumption in China and India will increase in coming time.

The World Gold Council (WGC) estimated that if China's gold jewelry consumption totaled the same per-capita rate as India, Hong Kong or Saudi Arabia, its annual demand would increase 100-fold. The council's related report on China, "Gold in the Year of the Tiger," contained a more modest prediction, however, estimating that gold demand would merely double within the next decade. In 2009, China's gold consumption came to $14 billion or 11 percent of the global gold demand.
the managing director of investment for the WGC, said, "The excitement generated by the Chinese economic growth story is not new. However, clarifying the impact of China's gross domestic product growth trajectory on the outlook for the Chinese gold market has been elusive — until today.

"Now one of the world's largest economies, China has already rapidly become a prominent gold market," Grubb continued. "However, our analysis confirms that significant untapped growth potential exists in the Chinese gold market. In China, if gold demand continues to accelerate and becomes more comparable with other major markets, the World Gold Council expects it to double in tonnage terms within the next decade, which would represent annual gold demand of approximately $29 billion at year-end-2009 average prices."

Over the past five years, gold demand in China has increased at an average annual rate of 13 percent. The WGC determined that  its consumption intensity substantially lags behind that of other major markets, while the country's total gold investment demand has grown in line with its gross domestic product (GDP) and population. China is the world's sixth-largest official holder of gold, but its gold reserves currently account for less than 2 percent of its reserves and therefore, remain low by international standards. Even adding 10 percent from its current level would translate to an additional 100 tons of gold offtake.

In the past decade, gold mining producers have increased their gold production by 84 percent; however, the nation's known reserves account for only 4 percent of global reserves. Assuming these figures are accurate, the WGC estimates that China could exhaust its known gold mining reserves in six years.

Eily Ong, an investment research manager at the WGC, added, "Our analysis confirms the potential for an increasing imbalance in supply and demand in China. Gold demand has already outpaced Chinese production growth since 1992, even before the deregulation of private ownership a decade later. However, our analysis shows that if gold demand were to continue to increase so markedly, domestic supply would be unable to keep pace. Whatever the outcome, China's outlook will almost certainly have implications for the global gold market."
India is also showing great response according to RNCOS, the global research pioneer, has extensively studied Indian gems and jewellery industry in order to examine the post-recession industry scenario as well as its future growth potentials. The research report titled "Indian Gems and Jewellery Market - Future Prospects to 2011" is a live testimony of conceptual analysis of all prominent market segments and their unbiased evaluation in Indian context. The findings of the report indicate towards fast growing and potentially lucrative market, which has shown notable resilience against economic slowdown and emerged out with marginal dents.

We have thoroughly researched the Indian gems and jewellery industry and identified decisive market trends shaping the industry's current and future growth prospects. As discussed in report, India's share in world gold consumption stands at around 20% at present. Based on some concrete market fundamentals studied in the report, we anticipate this share to grow dynamically in coming years and the country will capture nearly one-fourth of global gold consumption by 2012.

Further, 85-90% of gold and gold jewellery demand in the country is domestically-driven and remaining 10-15% is export-led. Gold jewellery constitutes the bulk of the Indian gems and jewellery market. Despite recession, exports of gold jewellery increased rapidly in 2008-09 over 2007-08, which is an indication of growing acceptance of Indian gold jewellery in the international market. We expect this trend to remain applicable in coming years also, which will enable the industry to achieve its exponential growth trajectory.

However, some restraints still exist that may hamper the smooth growth of the industry. Highly unorganized market structure, cheap and attractive Chinese products, etc. can potentially disrupt the growth rhythm of the Indian gems and jewellery market. So, a feasible and proactive contingency strategy is required to overcome such challenges.

"Indian Gems and Jewellery Market - Future Prospects to 2011" is an outcome of extensive research and thorough analysis of the Indian gems and jewellery industry. It provides coherent study of gold, diamond, gemstones, and jewellery segments and provides all-round market intelligence on production, consumption, exports, imports, etc. The report also includes competitive landscape so as to help clients in outlining their market strategies accordingly.

Montek wants agri reforms, pushes for market prices

SWEEPING MEASURES TO BOOST FARMVILLE

THE country's apex planning body has called for wide-ranging reforms in agriculture, while criticising the strategy employed by the government to increase farm output and tame soaring food prices. 

    The Planning Commission said the agriculture pricing system should be made more market-oriented by delinking support prices from procurement prices. It suggested measures such as abolition of levies and stocking limits, encouraging free movement of goods across the country and doing away with bans on exports and futures trading. 
    In its mid-term appraisal of the Eleventh Plan (2007-12) to be ratified by the full Planning Commission under Prime Minister Manmohan Singh on Tuesday, the panel pointed out that while the farm sector did well between 2005-06 and 2007-08 to grow at 4%, the performance in the past two years showed that the government's strategy was not effective and more needed to be done on the supply side to maintain growth. 
    "There is no adequate analysis of how much of this — growth in the three years starting 2005-06 — was due to increased allocation of public resources for agriculture under this strategy rather than to a favourable weather pattern or private investment response to better demand and prices in a booming economy," the document said. 
    The government's management of agriculture has drawn criticism from several quarters after its policies failed to rein in food price inflation, which is hovering around 18%, a level unseen in several years. Growth in agriculture production dropped to 1.6% in 2008-09 and is estimated to post a decline of 0.2% in 2009-10 due to poor rains affecting kharif crops. The government has targetted 4% agriculture growth for the plan period. Agriculture and allied activities account for less than a fifth of India's gross domestic product (GDP), but it provides livelihood to more than 60% of the country's 1.2 billion people. 
    The Eleventh Plan strategy for enhancing farm production stressed on improving farmers' access to technology, enhancing the quantum and efficiency of public investments, increasing systems support while rationalising subsidies and encouraging diversification towards higher value crops and livestock, while addressing food security concerns. Despite policymakers talking about the need to open up the domestic agriculture sector to encourage private investments, the Planning Commission believes that the system is still full of "strangulating controls" dissuading major private sector investments in logistics and storage. 
CROP OF CHANGE 
TROUBLE WITHIN 
Agriculture productivity has stagnated The system is still full of controls, dissuading private sector investments in logistics and storage MSP has become procurement price, discouraging farmers to diversify into high-value crops Fertiliser subsidy is not giving desired results. 
KEY SUGGESTIONS 
Delink support prices from procurement prices Remove stock limits on agricultural commodities Encourage free movement of goods across the country Do away with bans on exports and futures trading Abolish levies on rice and sugarcane Plan panel for a unified market 
RESTRICTIONSmade sense in the '60s and the '70s when the country was not self-sufficient and farmers needed protection. Now, in a globalised world market, such restrictions act as a disincentive to producers," said Surabhi Mittal, senior fellow at ICRIER. Price incentives would either motivate farmers to diversify to higher value crops or allow them to continue to produce what they have been producing more efficiently so that it fetches them a better price in the market, she said. 
    The suggestions did not go down well with non-government organisations, which have warned against any move to remove stock restrictions. "Removal of restrictions is a sure recipe for disaster," said Devinder Sharma, food analyst and chairman of the Forum for Bio-technology and Food Management, a New Delhi-based NGO. Mr Sharma said the main reason behind the success of the Green Revolution was the fact that farmers were given an assured price and market through a procurement system. 
    Pointing out that with the minimum support price (MSP) is becoming de facto procurement price, the document said farmers are discouraged to diversify into high-value crops that are not covered by MSP. It suggested that to make the pricing system more market oriented, support prices should be delinked from procurement price where the latter can be changed depending upon market conditions and in full competition with private trade. 
    The draft report called for abolition of levies on rice and sugarcane, free movement of goods across the country creating one unified national market, abolition of stocking limits, export bans and bans on future markets on private trade. On fertiliser subsidies, the draft suggested that fertiliser prices should be linked with MSP of wheat, rice and sugarcane.

Gold regains shine at $1.1k/oz

But Invest Max 10%: Experts

Mumbai: Gold is again in the spotlight after prices rose above $1,100 an ounce in Europe on Monday on continued demand for the precious metal as investors use it as a hedge against uncertainties in the global economy. However, financial experts warn investors against going overboard on the yellow metal, as prices are unlikely to soar further in the near future. 

    "I would recommend most conservative investors to invest a maximum 10% of their portfolio in gold. Anything more than that would be counter-productive. Normally, individuals should limit their exposure to 3% to 5%,'' says Suresh Sadagopan, chief financial planner, Ladder 7 Financial Advisories. "Though gold has the potential to appreciate more than in the last 20 years, it is unlikely to be a one-way journey. There will be a lot of volatility,'' he adds. 
    Investors have woken up to the glitter of gold since the precious metal has outperformed all other assets, including stocks, a year ago. Since then, they have been investing in a variety of options like coins, gold ETFs, etc. According to experts, gold ETFs are the best options for retail investors to invest in gold as it doesn't involve physical possession of the metal. Gold ETFs returned around 7.77% in the last one year.

Don’t link commodity futures & inflation: Basu

Give More Thought To Storage & Release Of Grain To Protect Poor Chief Economic Advisor to finance ministry Kaushik Basu on Friday said futures trading in commodities allowed efficient price discovery and will not fuel inflation, articulating the need for a clear policy on this sensitive issue. Futures trading in agri commodities has often been blamed for high prices and the government has even banned or suspended trading occasionally. Trading in sugar futures was suspended till June 2010 when prices began to rise in May last year. Rice, urad, and tur are other commodities in which futures trading has been suspended. "You cannot link the two (commodity futures and inflation)... The reason why I am personally in favour of allowing futures trade in commodities is because it is not going to make inflation worse," Mr Basu said at a FICCI seminar on de-risking the futures trading in commodities. Even the government has admitted in Parliament that commodities in which there are no futures trading have also shown sharp acceleration in price rise. Futures trading in urad and tur was suspended in January 2007 but the prices of these commodities rose sharply.      The government had even set up a committee to investigate if there was any link between prices and futures trading. The committee had concluded: "... no strong conclusion can be drawn on whether introduction of futures trade is associated with decrease or increase in spot price volatility.''      The policy flip-flop has discouraged the development of a sound futures market in agri-commodities, which Basu felt was extremely important for many stakeholders to take a position to manage price risk.      However, he added it should not be left unregulated as there are possibilities of people getting cheated.      Futures trading is regulated by the Forward Markets Commission, which is under the jurisdiction of the ministry of consumer affairs, food and publicdistribution.      Forward Contracts (Regulation) Act, 1952 does not prohibit futures trading in any commodity. At present, 106 commodities are notified for forward trading.     The oversight of the commodities market has also been a matter of debate with some experts arguing it should be regulated by the stock market watchdog Sebi.      The government's storage and release mechanism of foodgrains needed to be improved to manage the prices, Basu said.      "We need to give much more thought on foodgrains management to protect the most vulnerable section of the population...I think this mechanism can be improved by bringing in private sector into play," he said.      "The government should not be the only agent that is trying to take this risk on its shoulders," he said.      He pointed that from January the government has been releasing foodgrains in smaller stocks and some of the downward pressure on food prices is probably due to this fact and this mechanism is managed better but not good enough.

Gold rush over for microfinance

KOLAR in Karnataka was once famous for its gold fields. But early last year, the district gave a warning shot to the next crop of gold diggers even though the mines here shut down long back. 

    The microfinance Gold Rush — the lure of 100% repayment despite interest rates as high as 35% — received a rude jolt after the Anjuman Committee issued a directive to the district's mosques forbidding believers from any further transactions with microfinance institutions (MFI). 
    The Kolar fatwa rested on dwindling incomes thanks to a slowdown in key trades in silk and handicraft and growing discontent against the tactics employed by MFIs for loan recovery. The following days showed MFIs, long feted for taking banking to the masses, how vulnerable could life be. Kolar had 43 MFIs, and together they lost Rs 60 crore. 
    For the nascent Indian MFI segment — with a loan book of around Rs 11,700 crore against a mere Rs 897 crore in 2005 — Kolar could just be the tip of the iceberg. 
    An extensive ET research on the sector across India shows that although the industry continues to be in a denial mode, worried regulators, lenders and borrowers themselves are distancing themselves from the Gold Rush and evaluating future options. 
    RBI deputy governor Usha Thorat agrees that there is aggressive pushing of loans to groups without ascertaining the repayment capacity of ultimate borrowers. 
    While that statement, coming from a central banker, is reminiscent of the subprime crisis which eventually brought down the US banking system, Ms Thorat dismisses that likelihood, saying the problem is not systemic. "The MFIs are too small for that," she told ET in an interview.