Business Standard

Poor market sentiment takes shine off gold

Despite fall in global rates, a weak rupee keeps buyer sentiments low fewer buying occasions also hit demand

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has been under pressure in the three weeks following Akshaya Tritiya, due to uncertainty in business sentiment resulting from a steep slide in the rupee against the dollar.

Overall sales of diamond and gold jewellery have remained subdued in the absence of a strong buying reason for customers. Generally, jewellery sales during April-May wedding season, which also hosts the year’s most auspicious occasion for buying gold, Akshaya Tritiya, constitute between 20-25 of annual sales. But this year, sales during this period were relatively subdued. Besides, the industry struck work for 21 days ahead of Akshaya Tritiya, resulting in loss of business worth Rs 20,000 crore.

The sentiment remained weak because of two major factors, explains Bachhraj Bamalwa, chairman of the apex domestic trade body, the All India Gems & Jewellery Trade Federation. Gold prices declined by 17.5 per cent from its highest level of $1,920 an oz in February this year to $1,680 an oz now. However, this correction has not translated into the Indian market due to a weak rupee. Since, the rupee has depreciated by nine per cent over the period, a marginal decline of 3.5 per cent in gold’s rupee value has failed to encourage customers to invest in the yellow metal. Customers are awaiting measures by the banking sector regulator, Reserve Bank of India, which would result in a decline in gold prices in rupee terms. Since February, the rupee has depreciated from 49 to over 53 against the dollar.

Second, customers keep away from fresh purchases after a grand season like Akshaya Tritiya. But, they are forced to come back to the market in case of of wedding or other muhurrat season. This year, there was no such reason. Hence, the overall buying sentiment remained dull, said Bamalwa.

The next wedding season would begin in November. However, demand may resurge around the time of Diwali and jewellers would have to be patient till then.

Business sentiment has remained weak globally, with gold following the rest of the commodities. JP Morgan Chase's surprise multi-billion dollar trading loss and the deepening European debt crisis dented market confidence. Gold futures for June delivery on the Comex division of the New York Mercantile Exchange were last down to $1,560 an oz.

In the wider-markets, the dollar has been strengthening against the euro. Adding to the downbeat mood were reports that Spain was making a fourth attempt at a domestic bank rescue package. Elsewhere, Chinese industrial production came in at 9.3 per cent for April, lower than the forecast of 12.1 per cent and the previous year’s 11.9 per cent. The consumer price index too, fell to 3.4 per cent, in line with forecasts but below the previous number of 3.6 per cent.

However, Rajiv Jain, chairman of the Gems & Jewellery Export Promotion Council, said fall in domestic jewellery sales in the past three weeks was lowest in a decade. “Rural sales may turn around soon, with the staggering growth in agri output this year. This is a major sign of relief for a recovery in jewellery sales in the near future,” he said.

Domestic agricultural output rose to 253 million tonnes (mt) this year from 232 mt last year. This raises the purchasing power of rural people, aiding investment in gold and its jewellery.

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