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Indians Buying Gold in the Midst of Their Stock Market Downturn

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US stock markets plunged Wednesday, shedding over 800 points. Could the be the popping bubble Ron Paul recently said was on the horizon? That remains to be seen. But equities in many emerging markets have been shedding value for several months. Take India for instance. As a recent article in the Economic Times of India put it, “Asset classes are in a state of churn. One look at the chaos in domestic equities is enough to suggest that not all is well with this segment.”

So what are Indian investors doing? Buying gold.

India’s NSE equity index has fallen 7% from a record peak in August and the value of the rupee has dropped 13% this year. But as the ET reported gold sales are strong.

Away from all the glare, gold is taking spotlight — gradually. Investing in this long considered safe haven is finding many takers as the price trajectory looks set to move north. “

The flow of gold into India hit a 15-month high when it more than doubled to 100 tons in August. Demand started climbing in July when imports jumped for the first time in seven months. Analysts expect demand to remain strong in the world’s second-largest gold market through the fourth quarter. Analysts say Q4 imports could rise as much as 9% year-on-year to around 250 tons.

The price of gold has dropped in rupees as well as in dollars. But Globe Capital Market head of commodity and Forex research Tarun Satsangi said he expects the price to rebound.

Gold is likely to reclaim $1,330 an ounce mark on Commex and Rs 33,500 on MCX. Keep buying gold on MCX as and when it comes to the vicinity of Rs 28,800. If gold is held for 2-3 years, one can expect decent returns.”

The Economic Times also noted the increased gold-buying by central banks. India’s central bank bought gold for the first time in more than a decade during its last fiscal year. Kunal Shah, Head of Commodities Research, Nirmal Bang, told ETmarkets.com:

Central banks globally are buying gold in order to diversify, because China and Russia have taken an aggressive stance and are shedding US treasury holdings. So, the only way they can diversify is by putting their money in buying gold.”

Local gold futures in India have risen about 6% since a low in mid-August. Bullion wholesaler Daman Prakash said this has prompted Indian investors to look for ways to diversify their portfolios.

Rupee is consistently falling and we don’t know how much it will fall further. It is prompting investors to hedge their risk with exposure to gold.”

Gold is not just a luxury in India. Even poor people buy gold in the Asian nation. According to an ICE 360 survey last year, one in every two households in India purchased gold within the last five years. Overall, 87% of households in the country own some amount of the yellow metal. Even households at the lowest income levels in India own some gold. According to the survey, more than 75% of families in the bottom 10% had managed to buy gold.

Get Peter Schiff’s latest gold market analysis – click here for a free subscription to his exclusive monthly Gold Videocast.
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