Precious metals ride high on consumer sentiment

Despite record prices, the sales of precious metals have seen a robust growth this festive season, compared to the lackluster performance last year that marked the beginning of the slowdown in India.

Driven by bullish bourses and an upswing in overall consumer sentiment, gold and silver purchases were also aided by an expectation that prices of precious metals will continue rising thereby, justifying these expensive purchases as a perceptive investment.

A year ago, while gold prices hovered around Rs 12,000 for 10 grams, a kilogram of silver would cost about Rs 18,000.

Recently, though, gold prices have touched Rs 16,000 for 10 grams and silver prices breached the Rs 28,000 mark, per kilogram.

On the sales front, in value terms, overall the industry saw growth exceeding 20 per cent as compared to the same time last year.

However, members of the gems and jewellery industry, which has benefited handsomely from the recent spending spree centered around Dhanteras, are remaining cautious about gold and silver prices continuing on their upward spiral, at least in the short term.

“Apart from the stock markets doing well and people having cash in hand, the market sentiment that prices of precious metals would continue going up also helped sales. Everybody was bullish this time. But it would not be completely uncalled for if the prices of gold and silver in India fall in the short-term,” regional chairman of Gems and Jewellery Export Promotion Council Pankaj Parekh said.

Other industry members, too, backed apprehensions of prices continually rising in the immediate future and added that the escalation could also inflict damage on their business as the consumer would only be able to contend with a limited elasticity in prices.

“Although it is difficult to predict how exactly the market will behave, I wouldn't be surprised if the prices fell by between 10-15 per cent in the short to mid-term which, if it happens, will be a substantial decline. The prices have been steadily climbing for a long time now,” silver retailer Sanjiv Kejriwal said. In the long-term, though, industry members seemingly retained their faith in these metals as a prudent investment vehicle.

“The more the increase in price, the number of investors who are attracted to precious metals also increase. As a result there will be an increase in demand and, looking forward, the cost could very well go up,” Subir Sen of BC Sen Jewellers said.

“Even though there could be a correction in the short term, over a longer period there should be an increase in prices. We must not forget that gold, especially, is not only a commodity but also an international currency,” All India Gems and Jewellery Trade Federation Vice Chairman Bachraj Bamalwa added.