India's gold and silver demand exploding

Gold and silver prices continued to rally in India over the past few days. Upcoming Diwali festival of lights normally leads to an increasing demand for precious metals among domestic jewellers, while investment demand remains high, as investors returned to gold and silver. According to Rajesh Metah, chairman of India's largest jewellery producer Rajesh Exports, India´s gold demand has the potential to climb by 25% in the upcoming festival season.

Rising volatility in equity and currency markets is driving capital flight into safe havens among domestic investors. India's gold price continues to rally marking one record high after another. The price of 99.5 per cent fine gold jumped by 860 rupees to 27,665 per 10 grams on Saturday. The price of 99.9 per cent fine gold rose 860 rupees to 27,790 per 10 grams at the Multi Commodities Exchange.

Moreover, experts forecast precious metals sales to be the best ever and likely reach new records in India´s upcoming festival season. It is an Indian tradition to give away gifts of gold and silver jewellery to family and friends on Diwali.

The price of 99.9 per cent fine silver jumped 955 rupees to 64,440 rupees per kilogram on Saturday. According to Rajesh Metah, rapidly accelerating inflation in many Asian countries is also driving demand. Despite the latest efforts by governments and central banks – which included interest rate hikes and the introduction of credit restrictions – inflation still remains at stubbornly high levels in both India and China.

Metah added that India's purchases of gold jewellery, gold coins and gold bars could jump to 250 metric tons by the end of November, an increase of 25 per cent compared to estimates of 200 metric tons in the same period of last year. Metah´s estimates are in line with previous statements from Prithviraj Kothari, president of the Bombay Bullion Association, who believes that India's gold imports could soar to record levels of up to 1,000 tons in 2011. India's gold consumption reached a record high of 963.1 tons last year, of these, 958 tons were imported.