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Gold glows brighter than stocks or real estate in India

Small investors in India are tilting towards gold to earn safe returns in the face of a volatile stock market, depressed real-estate prices and a crisis in the country's largest mutual fund manager, traders say.

"Confidence of small investors is shaken," R K Das, general manager (treasury) at Adani Exports Ltd, said on Monday.

Investment in gold is considered a comparatively safer bet, he said, adding that people who burnt their hands in stock markets or mutual funds are investing in the yellow metal.

Indian share markets have been convulsed by a series of crises since March, ranging from payment defaults by brokers to allegations of insider trading and price manipulation.

India's most widely followed 30-share benchmark equity index has fallen 16.6 per cent since January 2001.

The cash-strapped Unit Trust of India, which manages Rs 575 billion in assets, stunned investors on July 2 when it froze redemptions from its flagship US-64 scheme. It later eased the curbs.

UTI is one of the largest players in Indian stock markets. About 41 million investors have invested money through its 87 different funds, whose combined assets account for two-thirds of the Indian mutual fund industry.

Nor is the real-estate business doing well, analysts said.

"Gold has now become more attractive for small investors," said Yashvant Thakkar, an official of Ahmedabad-based gold trading firm Amrapali Industries Ltd.

Ahmedabad is the country's leading gold importing centre.

This is a temporary phase, said a Bombay-based bullion trader, adding that investors will return to stocks and mutual funds once the markets stabilise.

"Investment returns on gold can't match other financial instruments, such as stocks, in the long term," he said.

IMPORTS SLOW

Traders said gold imports into India, the world's largest consumer of the metal, were slow due to firm global prices.

"International gold prices are probably stabilising at a higher level," said Nayan Pansare, an official at gold trading firm Inter Gold Ltd, adding that importers would now consider a price between $265 and $267 per ounce a good rate.

Spot bullion was traded at $269.70/0.20 an ounce at 0600 GMT, up from the open in Hong Kong at $269.50/70.00 and New York's last quoted levels.

The Indian gold market's perception of the price range appeared to have shifted, traders said. Earlier this year, importers had felt comfortable with a range of $260-$265 per ounce, levels that prevailed in mid-March and early May.

"A series of festivals, starting from August 4, is likely to boost gold demand in the country," said Rajiv Popley, director of gold trading and exporting firm Popley Gold Ltd.

Traders said gold imports would pick up if prices fall to about $267-268 per ounce.

India imports about 535 tonnes of gold a year to meet its annual demand of around 830 tonnes, with the rest met by huge reserves in households and unofficial channels such as smuggling.

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