Business Standard

Customers shy away from market as gold price nears Rs 70,000 milestone

The gold price was Rs 28,430 per 10 gram a decade ago, up 141 per cent, giving a 9.2 per cent compounding annual return

Gold, Gold bars, gold price

Photo: Unsplash

Rajesh Bhayani Mumbai

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Even as the price of pure gold nears Rs 70,000 per 10 gram, customers have already disappeared from the market. In just a single month, the price in Mumbai’s Zaveri Bazaar has risen by nearly 10 per cent, trading at around Rs 68,500 per 10 gram. The Mumbai spot market has slipped into a heavy discount of $15–20 per ounce, or Rs 400–550 per 10 gram, since prices have risen sharply in a month.

Even gold imports, which were around 100 tonnes in February, fell sharply in March. The industry estimates that only 25 tonnes were imported.

Jewellers are eyeing marriage demand and Akshaya Tritiya falling in the first week of May. They are said to be preparing to meet demand in case gold price falls, but jewellery fabrication has been affected. The movement of gold is also affected following higher vigilance during the election code of conduct.

Bhargava Vaidya, a bullion industry consultant, said that “marriage demand in India has been constant or maybe slightly up in value terms. But with rising prices, in terms of quantity, demand has fallen. At the current price level, the demand trend will continue”.

The gold price was Rs 28,430 per 10 gram a decade ago, up 141 per cent, giving a 9.2 per cent compound annual return. This high return is gradually transforming market demand.

Surendra Mehta, national secretary, Indian Bullion and Jewellers Association, agreeing that customers are staying away from the market as of now, said that “the demand for jewellery has been gradually shifting to coins and bars and other gold investment avenues”.

In a way, it is “attracting men over women”.

Although demand for jewellery is still higher in terms of total demand, sovereign gold bonds and exchange-traded funds for gold have provided a good alternative for gold investors.

In jewellery, low-caratage jewellery is preferred, with rising prices affecting demand in quantity terms. However, Mehta sees the cascading effect of record-high prices going forward.

“With high prices affecting demand, more and more people will see this as an investment avenue, which means gold is gaining back its status as a store of value.”

A store of value is a protector of wealth.

Vaidya agrees, saying that with price fluctuations of 10–15 per cent, gold is a store of value and “investors should have 10–15 per cent gold in their portfolio”.

The next big occasion for gold demand is Akshaya Tritiya, which falls in the first week of May.

Jewellers are preparing to reduce jewellery stocks during the Akshaya Tritiya. They want prices to moderate before that. Market insiders estimate that customers could return if prices of gold in the international market fall back to around $2,100.

High prices are affecting jewellers in many ways. A leading jeweller said that the stock of gold jewellery with stores spread nationally is estimated at 300-400 tonnes, raising their inventory cost. This used to be 100 tonnes a decade ago, and high inventory is a result of store expansions by retail chains.

So far, the major demand has been for 22-carat jewellery, which could be replaced with 18-carat jewellery. High prices may lead jewellers to convert their 22-carat stock into low-carat jewellery, which will only add to their cost.

Industry executives said that demand may even rise for 14-carat jewellery. In this scenario, Akshaya Tritiya demand will be crucial for jewellers.

Chart




YELLOW METAL’S RESURGENCE AS STORE OF VALUE

·? ? ? ? ?Market sees transformation in demand components

·? ? ? ? ?Jewellery demand in quantity terms affected

·? ? ? ? ?Investment demand to see improvement

·? ? ? ? ?Store of value concept for gold back in vogue

·? ? ? ? ?Next demand occasion Akshaya Tritiya crucial for jewellers

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First Published: Apr 02 2024 | 4:25 PM IST

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