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Gold loses sheen as prices rise and farmers face cash crunch



Demand for gold from rural India has dropped by more than half since mid-December as the price of the yellow metal has surged. The dip in demand has mainly been attributed to lesser liquidity among the farming community, who accounts for nearly 60% of the country’s annual gold consumption, and the rise in prices.

As a result of this poor demand, dealers are offering gold at a discount of $10-$12 per ounce on the price of gold this week, which has widened from $8 per ounce last week.

“The demand is very less in rural parts. Generally, the daily average consumption of gold on all-India basis hovers around 250-300 kg, but now it is ranging between 50 and 100 kg. Liquidity crisis is affecting the overall demand,” said Haresh Acharya, secretary, Bullion Federation.

Jewellers from rural parts expressed their disappointment over declining gold sales. Ravi Shankar Gauri, president of Gold Merchant Association of Satna, Madhya Pradesh, said, “Farmers do not have any reserve fund. They have stopped investing in gold for creating assets. Whatever little bit of buying is happening is because of the upcoming marriage season.”

Gauri’s views were echoed by Rajkumar Agarwal, president of Uttar Pradesh-based Barielly Sarafa Association. “There is very little demand for gold. Farmers do no not have cash, so they aren’t keen on investing in gold. What we hear from farmers is that even though the government has announced minimum support price for their crops, they are not getting it in hand. Unless the cash flow increases, gold buying won’t pick up.”

In rural India, gold prices is regarded as an important asset class. Of the country’s total annual gold consumption of 800-850 tonnes, nearly 60% is bought by the farmers.

On Monday, gold rose, helped by a weaker dollar on expectations that the US Federal Reserve might apply brakes on its monetary tightening cycle in 2019, although an improved risk appetite has limited gains for the safe haven metal. Spot gold was up about 0.4% at $1,290.42 per ounce. In the Indian market, gold price (without GST) was hovering around Rs 31,800 per 10 gm.

Shekhar Bhandari, senior vice president and business head – global transaction banking and precious metals at Kotak Mahindra Bank, said, “The trade war between the US and China will result in trade challenges in 2019. There is also an apprehension that there may be some sort of a recession in the developed world. It is also expected that there will be more activity from the central banks as far as gold is concerned. All these factors will push gold prices up this year by at least by 10-12%.”

Courtesy: Economic Times

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