Prices, investment products in focus at India gold meet

As gold rallies to consecutive record highs, price, imports and investment demand for bullion will top the agenda at a conference in India, the metal's biggest consumer, this week.

Attendees will not have far to look for evidence of India's long-standing worship of gold, as the conference takes place in Kovalam, just an hour away from a USD 22 billion treasure hoard found last month under a temple in Trivandrum.

Gold prices in India, which relies on imports for almost all its supplies, have climbed about 25% so far this year to peak at Rs 26,575 (USD 583) per 10 grams on Thursday, around USD 1,810 an ounce.

Spot gold is at USD 1,790 an ounce, near record highs above USD 1,813, spurred higher by investors looking for a safe haven as concerns over the health of economies in Europe and the United States hit currencies, stocks and bonds.

The 8th India International Gold Conference, organised by the Bombay Bullion Association, will look at global gold scrap supplies, bullion-based investment products, an outlook on the bullion market and industrial uses of silver, as well as detailed discussion of the domestic gold market.

"People will be looking at the kind of investment that could come in at record prices and new avenues that people might have to cover their risk in other markets," said Gnanasekar Thiagarajan, director at Commtrendz Research, a commodity broker based in Mumbai.

Conference attendees and participants, spanning state-run MMTC to Bank of Nova Scotia, will weigh the impact of record prices on imports to India.

Imports in India rose 34.9% in the first half of the year to 553 tonnes after a surge of 72% in 2010 to 959 tonnes and a whopping 38% rise in investment demand, as high prices curbed buying this year.

Local prices are up more than 41% on a year ago.

"People are thinking of almost double prices compared to last year," said Daman Prakash Rathod, director with Chennai-based gold wholesaler MNC Bullion.

But, he added, "in the coming months, strong seasonal impact will not allow any let up on the import front."

India's obsession with gold is nowhere more evident than in its wedding season, which runs from September to December, when jewellery and gilded gifts abound as brides traditionally carry their wealth while sons inherit land and fixed assets.

Rural consumers -- many of whom invest in gold as they live far from the facilities of a bank -- will be looking to monsoon rains expected to be only slightly below normal to give a good crop and so boost incomes and saving capacity.

Investment spur?

Traders say rising awareness among India's 1.2 billion population of the investment avenues in gold due to the large presence of commodity, stock brokers and mutual fund houses in smaller towns has supported buying to save.

"Globalisation of media and better reach to every nook and corner of India through mobile (phones), cable TV have made a dramatic difference to customer preference," said MNC's Rathod.

Investment in gold bars and coins rose eight percent in the quarter to March to 85.6 tonnes, with investment in exchange traded funds jumping 57% to 15.077 tonnes in February on a year ago -- small amounts but a significant shift.

Still, with foreign players not allowed in commodities markets in India, there are limits to liquidity, crimping participation from hedge players and others who want nimble trading.

The conference could see price forecasts from Scotia Mocatta, a unit of Canada-based Bank of Nova Scotia, State Bank of India, Religare Commodities, and GFMS, which was recently acquired by Thomson Reuters.

Industry participants will also be hoping the Reserve Bank of India (RBI), the country's central bank , will give approval for forward contracts in silver and loans for traders, along with an exchange traded fund for the metal.

"This facility should be there for flexibility in business operations. We are depriving (silver traders) of benefits and cashing in on lower prices. If we have these facilities for gold traders, then why not for silver?" said Mayank Khemka, managing director with Khemka Group of Companies, one of the speakers at the conference.

A forward contract is a non-standardized agreement between two parties to buy or sell an asset at a specified future time at a price agreed today. Khemka said they intend to take up the issue with the RBI in September.

Participants will be also watching how India's regional rival and neighbour China, which the World Gold Council says will overtake India this year in terms of gold consumption in the short-term, is coping with regulatory changes that allow more companies to deal in precious metal and what lessons traders back home can draw from them.