MUMBAI/BEIJING (Commodity Online): Demand for gold bars and gold coins is rising in major yellow metal consuming nations like China and India as investors are leaving the paper gold-exchange traded funds or Gold ETFs for physical gold.
In India, sale of gold coins and gold bars is increasing despite the high price of gold. A recent Commodity Online study said that buying of gold coins has increased across jewellery shops, banks and post offices in India thanks to financial year schemes. In India, the financial year closes on March 31.
Indians continue to buy gold coins and bars as they believe that gold is the ultimate family asset. Hundreds of new jewellery show rooms being opened across big cities and small towns in India to cash in on the boom in gold coins and gold bars and also to bank on the people's penchant for investing in gold, said the report.
Buoyed by the brisk sale of gold coins through post offices, India's postal services department has extended several times schemes to sell gold coins through the post offices. Every month, India Post is launching gold coins trade in new post offices.
India is the largest consumer of gold in the world. The approximate consumption of gold in India is around 700 tonnes per year. Indian households own the largest physical gold in the world--around 15,000 tonnes.
India Post gives training in handling the software, developed by Reliance Money, for handling gold coins sale and transactions. Every customer is being given an invoice or bill detailing the transaction. While India Post earns an amount as commission, Reliance Money bears the service tax on the commission paid to India Post.
The stocking and sale of gold coins in the post offices are under the direct supervision of the respective postmasters. The postmaster is required to check the Reliance Money web site on a regular basis for the latest updates of gold rates and discounts.
Each coin comes with certification from Valcambi Switzerland and quality packaging, as well as a number and assayer certificate. The gold coins are packed in a sealed cover with the certification from Valcambi, Switzerland with the India Post logo.
India Post is offering 5% special discount to its customers during festive seasons and special occasions.
In China, special gold bars are being featured in World Expo pandas that went on sale this week, each showing a portrait of the 10 pandas that came to Shanghai from Sichuan Province.
Gold and silver products are among the most popular Expo souvenirs, followed by toys and stationery, said Xin Juehui, director of Sales Management Department of the Bureau of Shanghai World Expo Coordination.
A 10-gram gold bar pack sells for 1,200 yuan, the 100-gram bar 9,900 yuan. A total of 160,000 gold bars is available. They'll be at the more than 4,000 licensed stores around China selling Expo products.Are gold coins and gold bars emerging as better investment propositions compared to Gold ETFs? It looks so if a report from VM Group research for Fortis Bank Nederland - Metals Monthly March 2010 is any indication.
The report says:
Why is gold relatively strong, when ETF demand appears to have collapsed? Our estimate of the supply/demand balance for 2010 posited a chunky surplus, even with 700t of ETF demand (up slightly from 576t in 2009).
Nevertheless, inflows as of mid March in 2009 have not just been light; there were in fact net outflows of around 15t across the 17 ETFs we track. By this time last year, there had been huge inflows, 105t in January 2009 and an enormous 221t in February 2009, while March 2009 also saw a large inflow.
Unless investment in ETFs show significant increases soon, Q1 2010 will have seen an enormous shortfall of over 400t of gold. With fears over the euro still prevalent in financial markets, perhaps nervous European investors looking to preserve wealth might make some large ETF purchases; however, there is no evidence of this yet.
That the price is remaining relatively strong despite this shortfall in ETF demand suggests either supply is lower than expected or demand is higher. On the supply side, mine supply moves too slowly to be a major factor, and mining company hedging has been very limited for some time. Central bank sales have been zero this year when in Q1 09 hey were about 60t, which explains some of the difference. If we were to pin down a supply shortfall then scrap might be the explanation, but this too was huge in Q1 09 and is more limited this year.
On the demand, side there is some evidence that Jewellery demand is picking up. The Bombay Bullion Association puts Indian imports of gold in February at 35t, more than four times the level of February 2009. Industrial and electronic demand might be recovering faster than we expected. Dehedging in Q1 2010 is likely to be limited, now that Barrick have closed out their book, but it was also very slow in Q1 2009, so on a year-on-year basis this might be a positive factor.
Yet even if we take the most negative view on supply and the most positive on demand these views are still not able to account for the shortfall in ETF demand. Perhaps then there, is another major factor bringing the market into balance, even at these prices? Is there a central bank purchase we do not know about? Has investment moved from the easily visible exchange-traded products to less visible bars, or even to a classic under-the-mattress purchase of coins?