Festive hopes fade for India's gold industry after price surge
Consumers tend to buy most gold during festival season
Buying patterns are starting to change
Duty cut in July spurred demand for short term
By Rajendra Jadhav
MUMBAI, Oct 9 (Reuters) -A rebound in gold prices to a record peak has dashed the Indian bullion industry's expectations of a lucrative festival season after their hopes were boosted by a deep cut in import duty two months ago to the lowest in a decade.
"Everyone was feeling positive about demand after the duty cut since we were seeing a spike in interest, and it really made us think the festival season would be amazing," Prithviraj Kothari, president of the India Bullion and Jewellers Association (IBJA), said.
"But with prices bouncing back right before the festivals, demand might end up being 20% lower than usual in terms of volume."
The festive season in India, the world's biggest gold consumer after China, traditionally has been the time when people buy the most gold. It is considered auspicious as a present at weddings and during festivals such as Diwali and Dussehra. This year, Dussehra is on Oct. 12, and Diwali will be celebrated in late October.
Kothari said buying habits were shifting, with consumers spreading their purchases throughout the year and focusing on price rather than waiting for special occasions.
Since last year's festive season, prices have risen by more than a quarter. Consumers' spending power has not kept pace, Amit Modak, chief executive of PN Gadgil and Sons, a Pune-based jeweller, said.
"Consumers are opting for lighter, more affordable jewellery to stay within budget," he said.
DUTY CUT AND MARKET ADJUSTMENTS
In late July, India cut import duties on gold to 6% from 15%, bringing local prices down to a four-month low of 67,400 rupees ($803.16) per 10 grams. Since then, they have risen by 13.2% to a record high of 76,331 rupees, tracking a rally in global markets. XAU=
After the duty cut, demand was robust, and jewellers made big bookings with jewellery manufacturers for deliveries ahead of the festive season, Ashok Jain, proprietor of Mumbai-based gold wholesaler Chenaji Narsinghji.
"But now, jewellers are not taking delivery of the entire booked quantity. Many jewellers are taking delivery of only half of their bookings," Jain said.
A Kolkata-based jewellery manufacturer, who asked not to be named, said jewellers were avoiding stocking heavy, more expensive, jewellery that was less in demand.
Dealers have also reduced the premium they are charging compared with following the duty cut to try to spur demand.
Indian dealers this week charged a premium XAU-IN-PREM of up to $3 an ounce over official domestic prices, – inclusive of 6% import and 3% sales levies, down from the premium of up to $20 in last week of July.
In August, India's gold imports surged by 216% versus the previous month to 136 metric tons as jewellers anticipated strong festive demand.
The subsequent price surge led imports to drop 60 tons in September, dealers have estimated.
($1 = 83.9180 Indian rupees)
Reporting by Rajendra Jadhav; editing by Barbara Lewis
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
