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Wednesday, April 20, 2011

What is your outlook for gold prices this year?

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‘Indians Not Looking To Buy Gold’
Kavya Balaji Interviews Ridham Desai

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A Morgan Stanley survey has concluded that India’s gold demand is likely to fall by 16 per cent (base case) in 2011. The Morgan Stanley Alphawise survey suggests that only 37 per cent of consumers are likely to buy gold in 2011. The rest are either unlikely to do so, or unsure. However, Morgan Stanley expects non-discretionary demand (which is half of total demand) to remain intact for the non-intenders of gold. We talked to Ridham Desai, managing director, Morgan Stanley Research to find out more about the report and his outlook for gold.

The report says that high prices deter buyers. If gold prices correct, wouldn’t demand go up?

We believe prices are currently at peak levels and consumer expectations suggest that they do not expect them to go up further. So, they are not looking to buy gold. Of course, if global risk aversion rises, then gold prices will move up. However, that doesn’t seem to be the case currently.

The report says people will prefer bars and coins over jewellery in 2011. Why?

Though jewellery accounts for 75-80 per cent of consumer demand in India, the survey suggests that Indians are looking to buy gold as an investment than for consumption, which in our view is a positive development.

What are the factors determining gold prices in India?

They are a function of global prices + exchange rate (US$ to Rs) + customs duty.

How does gold demand affect the Indian economy as a whole?

Gold seems intricately linked to real rates and deposit growth and, thus, liquidity in the system. Also, its position on household balance sheets and savings pools has implications on savings and consumption behaviour.

What is your outlook for gold prices this year?

Our global metals analyst, Peter Richardson, targets gold prices to close 2011 at $1,400 per ounce (base case).

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