Gold purchases in India are poised to climb in the final quarter to the highest level since 2012, adding to signs that lower prices are spurring a resurgence of buying in Asia.
Demand may jump as much as 15 per cent from a year earlier, said Bachhraj Bamalwa, a director with the All India Gems & Jewellery Trade Federation.
That would increase consumption to about 230 tonnes, the highest for the quarter since 261.9 tonnes in 2012, World Gold Council data show. India vies with China as the world’s biggest gold consumer.
A decline in global prices to the lowest level in more than five years in July has fuelled physical demand in Asia.
A shock devaluation of the Chinese currency last month and a rout in equity markets also helped buying.
In India, demand usually peaks in the final quarter with gifting during festivals, which begin at the end of September this year and culminate with the start of the wedding season in November.
“The off-season demand was not very bad this year because of the lower prices and that’s why we expect the festival season to be good as well,” Mr Bamalwa said from Kolkata.
“We saw higher imports coming in the last month, showing that jewellers are preparing for good demand for festivals and weddings.”
Swiss exports of gold to India increased to 66.9 tonnes in August from 66.2 tonnes in July.
Shipments to China jumped 49 per cent to 17 tonnes and they more than doubled to Hong Kong, reaching 36.2 tonnes, according to data on the website of the Swiss Federal Customs Administration.
Imports by India probably rose to 120 tonnes in August from 89 tonnes a month earlier and overseas purchases may be 250 tonnes in the final quarter, Mr Bamalwa said.
Futures on the Multi Commodity Exchange of India plunged to the lowest in almost four years in July and traded at 26,295 rupees per 10 grams late morning in Mumbai yesterday.
“We are very confident about how the season will turn out,” CK Venkataraman, chief executive for jewellery at Titan, said by phone from Bangalore. Current price levels will be good enough to attract customers, he said.
About 60 per cent of demand in India comes from rural areas, where most people depend on farming.
While monsoon rains have been 13 per cent below normal, farmers have increased plantings and rural demand may not be affected, Mr Bamalwa said.
The nation imported 891.5 tonnes in 2014, WGC data show.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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