Higher prices mean gold loses its lustre for Indian buyers
Mumbai-India (Nov 17) Business should be brisk for Mumbai jeweller Anil Jain. With the wedding season under way, it is a peak time for buying gold in India. But his sales are half of what they were last year. “The prices have increased and the whole economy is not performing well,” says Mr Jain. “It’s subdued.”
In India, which is the world’s second-largest consumer of gold after China, the precious metal has deep cultural and traditional roots. But that has not stopped it from losing some of its shine in recent months amid a challenging backdrop.
The World Gold Council forecasts the country’s gold demand this year will fall to its lowest level in three years. Demand for the yellow metal in the three months to the end of September was down 32 per cent to 123.9 tonnes, compared to the overall third quarter demand for 2018, its data on India shows.
Somasundaram PR, managing director India at WGC, says this is due to “weak consumer sentiment and high prices”.
Seen as a safe haven, gold prices have risen amid concerns about the global economy. Prices in India are hovering sky-high at around 39,000 rupees (Dh1,996) in India, up more than 20 per cent compared to a year ago.
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On top of this, the WGC cites heavy rains during this year’s monsoon season as a factor in demand weakness. The rains wiped out crops, meaning many farmers took a hit to their earnings, leading to a decline in the appetite for gold among the rural population.
India received its highest levels of monsoon rainfall in 25 years this season, which started in June and lasted four months. Most of India’s gold demand comes from rural areas, where the majority of the country’s population still reside, and where people often store their wealth in gold as an alternative to banks.
“Gold prices increased sharply in a short time frame, thereby deterring consumers,” says Arvind Sahay, chairman of the India Gold Policy Centre at the Indian Institute of Management Ahmedabad, which conducts research on the country’s gold industry. “The slowdown in economic activity has added to the weak sentiment.”
This is despite the fact that India has been celebrating festivals, in particular Diwali last month, which is a popular time to purchase gold. India’s wedding season has also begun, which usually leads to a gold-buying rush in the country, with jewellery considered essential to lavish marriage celebrations that span across several days. The yellow metal is believed to bring good fortune and is a way to show off wealth, and also an essential part of the dowry system, which is still widely practied in the country despite having been banned.
Ketan Chokshi of the jewellery brand Narayan Jewellers, based in Vadodara in the western Indian state of Gujarat, says “India still has a ritual value for buying gold”.
“It’s considered to be auspicious to buy gold and especially during weddings in India,” he says. “You can’t imagine an Indian wedding without gold.”
He says “people still believe it has an investment value” and want to buy the precious metal. But consumers are reducing the value of their purchases in the current economic climate, Mr Chokshi says.
India’s gross domestic product growth fell to a more than six-year low of 5 per cent in the April to June quarter, and with the latest quarterly data due to be released later this month, analysts are predicting that growth may have fallen even more – which does not bode well for gold demand. “We don’t think the market is going to come back to normal for a least another three to six months,” says Mr Chokshi.
Nbusiness
