Indian gold buyers aren’t buying gold

Gold (GLD, quote) prices have been slipping over the weekend, and nobody seems to be sure whether it’s a pause in buying or the beginning of a correction. Some stories are cropping up in India, though, that suggest that even if gold prices aren’t falling yet, they have reached a plateau.

On February 25, The Economic Times of India told the story of Satya Prakash Saini, a small farmer from Rajasthan’s Jhalawar district. Saini had a good harvest, and “as most villagers would do,” visited a local jeweler to buy gold for his second daughter’s dowry. (Indians traditionally give gold at weddings.)

He soon learned that the 25,000 rupees he had saved was not enough to buy even 10 grams of gold. According to the Times, “Saini changed his plans and parked his savings in a three-year bank deposit.”

Saini is not alone. Other farmers and ordinary Indians are stepping away from their traditional purchases of gold, investing in bank and insurance products instead. They have been priced out of the gold market.

As a result, gold sales and imports are slipping in India. Commtrendz Research has told Reuters that it expects gold imports to drop up to 20% in 2012. High prices and strong stock markets are likely to dent investment demand.

Demand is already dropping, with gold imports falling 44% in December 2011 to end even for the year. India’s demand for gold now trails China for the first time, and expected to continue to do so through 2012.

President of Bombay Bullion Association Prithviraj Kothari told The Economic Times, “People are in diversifying mode. Equity markets, which were trading below its book value, is looking attractive. Liquidity is going back to banks, which is giving 10 percent interest.”

Goldbugs will continue to chase precious metals for their alleged security in uncertain times. However, gold may have finally reached a price point where other investments offer equal or greater rewards — especially in emerging markets that are just beginning to embrace 21st century finances.

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