Current buying slowdown is temporary and mirrors the 2009 financial crisis there, argues Chris Vermeulen
Even though demand for the precious metal
is way down in India, the situation still offers hope for gold
bulls. Why? Because we've been here before -- in 2009 to be exact.
In early 2009, the Indian economy and rupee tanked. Gold
demand almost completely dried up. According to precious metals
consultancy GFMS, Indian demand for gold
in the first quarter of 2009 collapsed by 77%. For the full year GFMS said Indian consumption dropped by 19%.
Now with the Indian economy slowing to its weakest growth rate in nearly a decade and the rupee falling, we are seeing a replay of 2009. The monsoon season has been poor, hitting farmers -- among the biggest buyers of gold
-- hard. Gold
prices have hit a record high in rupee terms, and India is expected to purchase, as forecast by the World Gold Council, only 750 tons of gold
, down 25% from 2011 levels. Meanwhile, the WGC forecasts that China will buy 850 tons of gold
Investors should pay heed to the clues that recent history is giving us. The drop in Indian demand is simply a cyclical phenomenon due to the lousy state of the Indian economy. It will recover eventually. And when it does, look out for the fireworks from renewed Indian demand for gold
added to the Chinese demand. In 2010, as pent-up demand for gold
was unleashed, Indian gold
consumption soared 74% to a record high of 1,006 tons according to GFMS.