Morgan Stanley

Latest AlphaWise Findings: Demand for Gold in India to fall in 2011

Mar 22, 2011

Mumbai —


Morgan Stanley (NYSE: MS) today announced the findings of its latest research survey concluding that India’s gold demand is likely to fall by 16% (base case) in 2011. The survey, the latest in the Firm’s AlphaWise Evidence Series, is based on interviews with over 1,600 chief wage earners from middle and high-income households across urban India.

Commenting on the implications of the findings, Ridham Desai, Head of India Research at Morgan Stanley said, “A fall in the demand for gold will have a positive impact on liquidity and deposit growth, and thus for banking sector earnings.”

Noting the high share of gold demand as a percentage of India’s GDP, and given that India imports most of its gold, Mr. Desai highlighted that “given these findings, we believe that the current account deficit can surprise on the downside with positive implications on growth.”

The report states that the current account deficit can fall by 12 bp to 59 bp purely as a result of the fall in gold consumption.

In the report, Morgan Stanley notes that gold currently accounts for 10% of Indian household savings. Private ownership of gold is a whopping US$900 billion while gold consumption accounted for 2.3% of the GDP in 2010. As per findings generated by the World Gold Council, India consumed 963 tons of gold in 2010, which amounts to one-third of the demand for gold worldwide.

Key conclusions of the report:

• Gold appetite in India seems to be waning as prices are too high.

• Indians appear reluctant to sell gold and will consider doing so only in a severe financial crunch. The attitude to taking loans against gold is not materially different.

• Gold is Indian households’ preferred short-term investment option due to its “safety” and “higher-return” characteristic.

• Even though gold has been the best-performing asset class over the past several years, households seem to rank property ahead of gold as a long-term investment.

The AlphaWise survey also highlighted that gold is not the first asset that households liquidate during bad times; it is equities. Gold remains an important asset class for investment, having outperformed most other asset classes over the past five years. In 2010, Indians bought more gold than ever before; with consumption up more than 100% YOY. However, in the short term, the price at which gold is being traded makes it considerably less attractive for investment. If prices continue to rise, demand may not come off given investor psychology.

In addition, the survey highlights that jewelry is highly preferred over gold bars or biscuits.


Morgan Stanley AlphaWise conducts evidence-based investment research to help validate key investment debates on behalf of Morgan Stanley Research analysts worldwide. The team employs innovative techniques to derive differentiated insights and forecasts – market research, Web mining, and real-time data sets.

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