Shweta Anand took half a day off work to get a jump on India’s jewelry shopping spree before the Hindu festival of Diwali, and she was looking for bargains.
“The best time to buy is before the shops get crowded,” said Anand, 27, as she eyed trinkets on velvet shelves at a store in Mumbai’s Zaveri Bazaar, India’s biggest jewelry market.
“I buy some gold jewelry every Diwali. Last year, I bought earrings. This time, I am getting a chain as prices are lower.” She spent 30,000 rupees (US$490) on a necklace.
Even after a two-week rally in bullion, domestic prices remain 7.4 per cent lower than a year ago just as sales are set to climb for the festival and wedding season. India is the largest gold buyer after China. The All India Gems & Jewellery Trade Federation said fourth-quarter imports of the metal may jump 75 per cent, which Barclays Plc said may support prices.
“The appetite for gold among physical buyers in India seems to have increased,” said Howie Lee, an investment analyst in Singapore for Phillip Futures Pte. “India’s attachment to gold is unlikely to break. This tradition has lasted for centuries. It’s a symbol of wealth or a form of investment, and the precious metal is deeply rooted in worship and culture.”
After import restrictions and a weak rupee led to a 34 per cent drop in demand in the first half of 2014, purchases are set to improve in India, the world’s largest buyer as recently as 2012.
Retail sales of everything from rings to pendants to necklaces may rise 30 per cent to 40 per cent during Dhanteras, the biggest gold-buying festival, said Rajesh Exports Ltd, a jewelry retailer and exporter.
Demand recovery
Diwali, the festival of lights celebrated by the country’s more than 800 million Hindus on Oct 23, is considered an auspicious time for buying gold. Researcher CPM Group estimates the holiday generates about a fifth of annual purchases in India, more than any other time of year in a country with a long history of hoarding the metal.
About 20,000 metric tonnes of gold are stashed in homes and temples, and Indians often inherit bullion in the form of ornaments or family treasure.
Jewelers in India, which represented 25 per cent of global bullion purchases last year, are betting demand will be rekindled by four straight quarterly declines in domestic prices, the longest slump since 2004. The premium jewelers pay to suppliers over London prices has plunged to about US$17 an ounce from US$120 a year earlier, cutting costs for consumers.
Buying surge
“Prices have fallen at the right time,” said Bachhraj Bamalwa, a director at the All India Gems & Jewellery Trade Federation, which represents more than 300,000 retailers and bullion dealers. Domestic demand will rise 15 to 20 pe rcent over the three months through December, with imports reaching 175 tonnes to 200 tones, compared with 114 tonnes a year earlier, Bamalwa said on Oct 15.
Gold traded in London touched US$1,183.24 an ounce on Oct 6, the lowest this year. Prices have tumbled 28 per cent in the past two years as the Federal Reserve signaled an end to stimulus measures intended to revive the US economy, while inflation remained in check.
Even as low prices fueled a surge in physical demand in China, the appeal of the metal as a hedge has waned for investors. Holdings in exchange-traded products backed by gold have dropped 12 per cent in the past year, helping to erase about US$13 billion of value.
More imports
In India, signs of a rebound in festival demand emerged in September. Bullion imports were valued at US$3.75 billion last month, 450 per cent more than a year earlier, the Commerce Ministry estimates.
Shipments jumped as jewelers replenished reserves to meet demand, said Bamalwa, the federation director.
Indians purchase gold at festivals and for marriages as part of the bridal trousseau and as gifts in the form of jewelry. Demand will be 850 to 950 tonnes this year, compared with 974.8 tonnes in 2013, the World Gold Council estimates.
An average of about five million weddings every year fuels demand for gold, regardless of prices, according to Prithviraj Kothari, managing director of Riddhisiddhi Bullions Ltd in Mumbai.
He estimates average purchases for a wedding at about 200 grams.
The increase in demand from festivals and the wedding season “alongside the potential for a short-covering rally could see gold extend its gains,” Barclays said Oct 13. “We believe the bounce is likely to be short-lived and remain cautious given the headwinds the macro-environment presents and would look for opportunities to sell into the rally,” it said.
Insatiable appetite
The public’s insatiable appetite for gold raised concern for the government because almost all of the metal is imported, widening the current-account deficit and weakening the rupee. India last year raised import taxes three times to 10 per cent and introduced a rule obliging shippers to supply 20 per cent of their cargo to jewelers for re-export.
The import curbs sent gold demand for jewelry and investment down 34 percent to 394.4 tonnes in the first six months, World Gold Council data show.
After the curbs throttled imports and cut the deficit to about US$32.4 billion in 2013-2014, compared with a record US$87.8 billion a year earlier, the government in May eased controls to allow more trading houses to bring in gold.
The government may consider re-imposing some curbs after Diwali as imports surged in the past couple of months, Finance Minister Arun Jaitley told ET NOW television yesterday, the Press Trust of India reported.
Asian buyers
Cheaper bullion may spur buyers in Asia, according to UBS AG. Prices at or below US$1,200 will attract physical buyers and be seen as favorable by investors, UBS analysts Edel Tully and Joni Teves said in a report on Sept 30.
A rush to buy will not materialise unless prices fall closer to US$1,100, they said.
Demand in Asia has declined this year after jumping in 2013, when global prices plunged 28 per cent, the most in three decades. Consumption fell 16 per cent in the second quarter to 963.8 tonnes, the World Gold Council estimates.
While China was the top buyer in 2013, demand in the three months through the end of June fell 52 per cent to 192.5 tonnes, less than the 204.1 tonnes purchased in India, council data said. – Bloomberg