India’s Appetite for Gold Slows Down

India, the world's biggest hoarder of gold in 2010, has apparently slowed down on its buying binge of the yellow metal.

And with its economy forecast to grow 6.5 per cent for 2011-12, according to projections by global finance major BNP Paribas, analysts and experts believe this will have a corresponding impact on the country's appetite for gold as well as for the precious metal's overall global price and supply performance next year.

In 2010, India accounted for 19 per cent of global demand for the metal. But because its economy is mainly reliant on the eurozone, which till now has to fully arrest its maddening fiscal crisis, India has experienced a drop in the value of its currency, the Rupee. Its value had collapsed 18 per cent against the U.S. dollar this year.

This drop eventually makes gold buying costly for the locals. Gold in India has risen by as much as 34 per cent this year.

Data from the World Gold Council showed India's demand for gold jewelry had already slid 26 per cent year on year in the third quarter, the Wall Street Journal reported. To compensate for the poor sales further dampened by the rising metal's prices, Indian gold jewelers have devised ways to sell their merchandise, to the point of tweaking the jewelry's gold content, by making hollow bridal jewellery, which gives the look of heavy ornaments, but is more cost effective.

BNP Paribas downgraded its economic projections on India due to sliding capital expenditure and its country's exposure to European banks. It had earlier projected the country's growth at over 7 per cent.