Gold Set to Rise on Fresh DEMANDGold May Rise From 2-Month Lows as Indian Jeweler Demand Grows
By Choy Leng Yeong
Sept. 11 (Bloomberg) -- Gold may rebound from the lowest prices in two months on demand from jewelers, who need to stock up for a peak in sales during India's wedding season and holiday festivals that begin next month.
Eighteen of 34 traders, investors and analysts from Sydney to Chicago surveyed by Bloomberg News on Sept. 7 and Sept. 8 advised buying gold, which fell 2.4 percent to $617.30 an ounce in New York last week, the lowest closing price since July 3. Eight respondents said to sell, and eight were neutral.
In India, the largest gold-buying nation, jewelry demand plunged 43 percent during the second quarter from a year earlier, the producer-funded World Gold Council said. Global demand for gold had suffered as buyers balked at prices that surged to a 26-year high in May.
Lower prices now ``may well bolster buyers' appetite, particularly in the run-up to the Indian wedding, festival season,'' said James Moore, a Kettering, U.K.-based analyst at TheBullionDesk.com.
Gold futures for December delivery dropped $15.30 last week on the Comex division of the New York Mercantile Exchange. The decline surprised the majority of analysts surveyed Aug. 31 and Sept. 1. The Bloomberg survey has forecast prices accurately in 76 of 124 weeks, or 61 percent of the time.
World gold demand fell in the second quarter to 801.6 metric tons, the third straight decline and the lowest total since the third quarter of 2004, the Gold Council said. Gold buying was down 16 percent from 959.8 tons a year ago, and demand from jewelers fell 24 percent to a three-year low of 562.5 tons, including 135 tons in India.
Demand Recovers
``Early indications from market reports are that gold demand has recovered'' in India since the second quarter, Jill Leyland, economic adviser to the Gold Council, said in an interview in London.
Gold buying in India peaks during the wedding season and festivals such as Diwali, which is on Oct. 21. The wedding season lasts from about November to mid-December, and then from mid-January to May. In Asia, parents usually give gold jewelry as gifts to the brides for adornment and financial security.
The price of gold has risen every September in the past five years, and there have been only nine declines in that month since gold began trading on public exchanges in 1975.
Indian gold demand may rise to 981 tons by 2010 and 1,153 tons by 2015 from about 800 now, according to the Associated Chambers of Commerce and Industry of India.
Jewelry Exports
The industry is ``promoting Indian ornaments in the U.S., Hong Kong and the Middle East,'' the association's president, Anil Agarwal, said in a statement Sept. 1. Jewelry exports by India to the U.S. have tripled to $1.751 billion last year from $565 million in 2001, displacing Italy as the biggest foreign supplier, Agarwal said.
India holds almost 14,000 tons of bullion, or 9 percent of the world's cumulative output of 153,000 tons, the association estimates. India's exports of gold jewelry are poised to rise to 315 billion rupee ($6.8 billion) by 2010, it said.
Gold, sold in dollars, also may rise as the dollar slides against other currencies, said Nagarajan Narasimhan, head of research at Crisil Research & Information Services Ltd., a unit of Standard & Poor's Inc.
``In the next few months, gold prices may pick up with festival demand in India rising and due to a weakness in the U.S. dollar,'' Narasimhan said Sept. 7 from Mumbai. Gold will trade between $620 and $640 in the third quarter and $640 to $680 in the fourth quarter, Narasimhan said.
China, Dollar
The dollar fell against the Chinese yuan last week to the lowest since China ended its peg to the U.S. currency in July 2005 as Finance Minister Jin Renqing said China will be ``more proactive and progressive'' in letting the market set the currency's value. A rising yuan makes gold, sold in dollars, relatively cheaper for investors holding the Chinese currency.
``China and India are becoming more affluent and are potential producers of additional demand for jewelry and safe- haven purchases,'' said Friedrich Kernstock, a metals trader at Kernco Metal Trading GmbH in Klosterneuburg, Austria. Gold will reach $650 this week, he said.
Second-quarter jewelry demand in China, the second-largest user, fell 2 percent from a year earlier, and purchases declined 10 percent in the U.S., the third-largest consumer, the Gold Council said. Annual mine production has been little changed at 2,500 metric tons for the past 10 years, according to GFMS Ltd., a London-based metals researcher.
`Bargain Hunters'
James Turk, founder of GoldMoney.com, which stores gold for investors and is based in Jersey, British Channel Islands, said he's seeing signs of demand picking up.
The company sold more than $12 million of gold and silver in August, which ``ranks up there as one of our better months,'' Turk said. ``This result is noteworthy because normally August is a slow period with people on vacation. That our volume was as strong as it was is a good indication that the bargain hunters were out in force last month.''
To contact the reporter on this story: Choy Leng Yeong in Seattle at clyeong@bloomberg.net