Soaring prices to mar gold demand this festive season

The escalating trade war tensions between China and the US is forcing investors to invest in a safe haven asset like gold, hence resulting in spiraling prices. The purchase of gold by the Central banks around the world have heightened the demand for gold. Globally, Central banks added 374.1 tonne in the first six months, helping push total bullion demand to a three-year high, according to the World Gold Council.

“The rise in gold prices has impacted consumer sentiments and gold buying trends. But we believe that these sentiments are short-term and we are expecting the demand to pick up soon,” said T S Kalyanaraman, Chairman & Managing Director, Kalyan Jewellers.

“Customers are also availing benefits from the rising gold price by selling or exchanging their old gold jewellery. Naturally, the old gold exchange and sales have picked up and customers are able to get more value on their old jewellery than what they had earlier imagined,” Kalyanaraman added.

The tremors of the trade war tensions between the US and China are now felt in the Indian gold market. Even as the festive season will start from September along with the subsequent wedding season in November, jewellers say that sales will be poor. In fact, many of them expect gold to hit Rs 45,000 per 10 gram.

“The issue is that prices are volatile. If the prices had steadied at some level then sales would have taken place. But price fluctuations are forcing people to stay away from the market. Sales are down by at least 60%. In the last six months, the price of gold in India has risen by 25%,” said Surendra Mehta, secretary Indian Bullion and Jewellers Association with 17,000 members pan India.

With the price of gold crossing Rs 40,000 per 10 gram this week, gold sales have been impacted and are down 60% to 80% in the retail outlets in Mumbai and across the country. The volatile prices are keeping the customers away from the market. After touching Rs 40,000 per 10 gram on Monday, it came down to Rs 39,000 on Tuesday to rise again to Rs 39,970. The sale of old gold has risen sharply, say jewelers as retail customers want to take advantage of the rising price.

India is the second-largest consumer of the metal after China, with consumer demand standing at 760.4 tonne in 2018. The entire demand is met through imports. India net imported 755.7 tonne last year, according to the World Gold Council (WGC). With the rupee weakening by 3% in the past three months, the spot gold prices rose by 23% over this period.

“Supporting gold price is continuing investor inflows. Gold holdings with SPDR ETF rose by 13.49 tonne to 873.32 tonne, highest since November 2016. Gold may witness choppy trade amid uncertainty over the US-China trade conflict and the Fed’s monetary policy. However, the general bias may be on the upside as trade concerns and global growth worries may keep safe-haven demand high,” Kotak Securities said in a note.

“For the wedding season that will start from November, the quality of gold bought will certainly be impacted but essential gold buying will happen. We are expecting gold prices to touch Rs 45,000,” Mehta added.

“The sale of old jewelry has gone up sharply. In fact, this is the only activity seen in retail outlets. The sale of gold in the festive season is certainly going to be impacted,” said Kumar Jain, the owner of Umedmal Tilokchad Jewellery.

“Usually, when there is an upward movement of gold prices, we witness customer response in two distinct ways. There is a set of customers who purchase because they think that the prices will go up even more or there is a wedding in the family. There is also another set of customers who wait for the prices to come down before making their purchases. So in that sense, while the bigger ticket wedding purchases continue, the casual buying is put on hold.” Kalyanaraman added

Courtesy: DNAINDIA