With local prices high, bulk consumers stay away; expecting RBI move to stop slide
As the depreciating rupee held bullion prices high in India, despite a drastic fall globally, trade in the commodity came to a virtual halt, with demand drying.
Bulk consumers in the domestic market stayed away from fresh purchases, amid expectations that a slight recovery in the rupee would bring some respite. Jewellery importers too, have postponed purchases.
Big traders are staying away from the market as they expect the Reserve Bank of India (RBI) to announce some dramatic measures to support the rupee and push it up against the dollar. However, for now, demand has fallen significantly and only unavoidable purchases are taking place.
According to Baccharaj Bamalwa, chairman of the All India Gems and Jewellery Trade Federation (GJF), overall gold demand has declined 30-50 per cent in the last one month due to absence of bulk consumers. Bulk consumers are those who buy gold in large quantities (in kg), for retailing in small quantities (in gramme). They include, jewellers, spot traders and providers of gold exchange traded funds (ETFs).
These traders have temporarily suspended new orders or reduced the quantity of purchase. Retail consumers have also adopted a ‘wait-and-watch’ strategy on the assumption that RBI would take measures to restrict the slide in the rupee. As a result, the value of imported commodities, including gold, would decline, providing a breather to consumers.
After hitting an all-time low of 57.33 in the late afternoon today, the rupee closed at 57.16 against the dollar, compared with the previous close of 56.31 per dollar.
“Gold has declined between $65 and $70 in the global markets in the last couple of days, which should have translated into a minimum Rs 1,100 per 10g with the rupee plunging. However, due to a drastic fall in the Indian currency, gold price decline was restricted at between Rs 300 and Rs 400 per 10g. We will see further decline as the rupee appreciates,” said Bamalwa. Today, in the Mumbai market, gold closed at Rs 29,940, a fall of Rs 125 per 10g. Gold has fallen below the Rs 30,000 mark after nine days.
India’s imports stood at 969 tonnes in 2011 but, a Reuters poll in March had estimated imports to fall to 655 tonnes in 2012.
Rajiv Jain, chairman of Gems & Jewellery Export Promotion Council, said, “Currently, demand from local and foreign markets are down after showing staggering growth in the first two months of this financial year. Depreciation in the rupee has increased the cost of all raw materials, including gold, silver and diamonds. Hence, the overall cost of jewellery has gone up. Apparently, global jewellery consumers have been postponing fresh purchases in anticipation of a fall in prices.”
“Export demand is likely to revive in the coming days due to Ramzan,” Jain added.
For producers and retailers of diamond jewellery, the rupee’s fall has made their products pricier. As the high volatility in raw material price continues, jewellers are considering increasing the frequency in price revision, from monthly to fortnightly.
“It would be interesting to see how others are adapting to the strategy. We are planning to revise the price every fortnight,” a retailer with 100 showrooms said.
