Fall in rupee exchange rate has helped arrest impact of a sharp correction in the international prices of gold, which are down nine per cent in the current calendar year, even as the price of domestic standard gold has remained more or less stagnant.
However, prices in India are down 6.8 per cent on average from their peaks. As a result, the country's price-sensitive customers are back in the market and demand is now expected to remain steady after the first half of subdued offtake. Indications are that jewellers have started restocking gold ahead of the festival season which is now just around the corner.
However, most of the consumer demand is for jewellery and that too of the light-weight variety, and investment demand is sluggish due to rising interest rates, tighter credit norms among other factors. As a result, overall imports are likely to contract by at least 15 per cent, market experts say.
From the Indian consumer's perspective, price consolidation below Rs 30,000 per 10 grams is seen as attractive. Going ahead, if the rupee continues to fall, gold will move up as prices have almost bottomed out globally.
Shekhar Bhandari, Business Head, Precious Metals and Treasury, Kotak Mahindra Bank, says, “Gold price in dollar terms is at one of the lowest levels and is almost bottoming out. The US economy continues to do better, leading the strengthening of the greenback. The significant fall in the Indian rupee against the dollar is largely due to global turmoil. This will lead to an increase in the price of gold in India.”
While international gold prices are down 8.3 per cent this year, in India, they are down only 1.1 per cent. However, prices in India have fallen from their peak by over six per cent, luring customers to buy the previous metal.
An India International Jewellery Show held in Mumbai, and which ended early this week, has seen encouraging footfalls, with jewellers turning up from various parts of the country and from some importing nations. A person familiar with the development said, “Inquiries and demand have been good, which indicates that a festive mood in jewellery buying is setting in. However, a large part of demand has been for light weight jewellery.”
Colin Shah, Vice Chairman, Gem & Jewellery Export Promotion Council (GJEPC) says, “This year the total volume of business generated in the event (Rs 80 billion) exceeds that of the previous year by more than 20 per cent. This has come as a shot in the arm to the industry which has been dealing with headwinds over the past 12 months”
Both festive and rural demand for jewellery is expected to continue for rest of the year. Chirag Sheth, senior consultant, India & South Asia at Metal Focus says, “Festive demand is likely to push Indian gold imports higher. However, ample inventory and caution on the part of jewellery retailers would translate into lower imports this year. We anticipate a 15-20 per cent drop in gold imports over last year.”
Last year India imported 860 tonnes and this year inward shipments are likely to be about 700-750 tonnes.
Investment demand is shrinking with rising interest rates in India and money moving to official channels. Gold is also under the scanner by various agencies, due to which buyers are giving the informal economy a wide berth. Imports, which remained low for 3-4 months, saw some spike in July, with jewellers restocking ahead of festive season. Tighter bank credit norms are also hurting demand this year while higher interest rates and rising flow towards bank deposits and mutual funds is curtailing India’s investment demand.