Higher gold demand likely this Diwali as stocks plunge

Amid weakness in equity markets, jewellers expect more retail investors to buy gold this Diwali. Due to the stock price volatility, “markets may witness a flight of capital to safe assets like gold”, The Economic Times quoted Shekhar Bhandari, business head (global transaction banking & precious metals) at Kotak Mahindra Bank, as saying. “The yellow metal may generate some appeal among investors.”

According to an ET report, last year, jewellery sales at retail level took a hit as issues such as customer verification and GST implementation impacted sentiments. During the October-December quarter of 2017, gold sale went up by 2 per cent to 249.3 tonnes. However, investment demand fell 3 per cent to 59.6 tonnes during the same period which was offset by a 4 per cent rise in jewellery demand to 189.6 tonnes.

Jewellers expect jewellery demand to exceed last years’ level but demand could take a hit if gold prices reach near Rs 34,000 per 10 grams.  “At the retail end, we are expecting better demand this year compared to last year provided prices do not shoot up from here,” he said. “Gold demand has remained muted for over two years because of demonetisation, KYC (know your customer) and GST issues. This time, the price is the main factor and also uncertainty in the market. But despite all these we are expecting demand to be good,” the ET report quoted Aditya Pethe, managing director of Mumbai-based jewellery firm Waman Hari Pethe as saying.

Gold prices were hovering around Rs 31,600 per 10 grams on Tuesday. The yellow metal has generated a return of 8 per cent since the beginning of this year while the BSE Sensex and Nifty have almost given up all their yearly gains as of now.

As the Indian rupee has corrected over 15 per cent in last one year, analysts believe gold prices may go up further discouraging retail investors to buy gold. India is a net importer of gold so a fall in rupee makes gold imports costlier.

According to the ET report, few analysts believe gold demand may remain muted this year as the market is not condusive for consumer spending and rural demand might take a hit as rains have not been uniform in all parts of the country.

Courtesy: Times Now news.com/ Image: Gold traders.com