India Switching to Gold Bars from Jewelry

Dented by high prices, the world's No.1 gold market is switching to Gold Bars and coins from jewelry...

WITH INDIA'S festival and wedding season now at its peak, India's gold traders are busy preparing for a huge rise in demand for the yellow metal, says Commodity Online in Mumbai.

Traders across the country from Kochi to Kolkata are now adding to their stocks as they see a big boom in sales in the coming weeks. India – the world's No.1 physical gold market – celebrates Diwali, an auspicious occasion to Buy Gold, on November 5.

The traders are Buying Gold in a big way despite the high prices of the metal. Demand is still there for gold, but traders have been buying Dollars in the market as well. Gold is a Dollar-quoted asset, and as India, the world's largest consumer of the yellow metal, imports majority of its requirement, the Rupee plays an important role in determining its landed cost.

State-run Indian trader MMTC Ltd expects to import more than 200 tonnes of gold in the current fiscal year to March 2011 on good demand seen in the current festival season despite high Gold Prices. However, the sharp run-up in the price of the yellow metal has taken gold jewelry beyond common man's reach in India.

Gold sales typically peak in the October-November period due to buying for the Navratri, Dussehra, and Diwali festivals. However, this year, jewelry demand is down 25-30%. Traders in the South say sales volumes are down 30-40%. In the West and East, sales are a little better, though still down by around 20%.

Gold Prices are now above Rs 20,000 per 10 grams in India. The surge in Gold Prices has deterred customers, and they are shifting to other investment avenues. According to analysts, a revival in demand can be seen if prices stabilise at Rs19,000-19,200 per 10 gram.

Though gold consumption in cities has fallen, industry officials are optimistic about rural demand as a bumper crop output due to good monsoon, better price realization and appreciation in land value will increase consumption of physical gold. Generally, around 60% of physical gold purchases are from smaller towns and villages.

However, while sales of non-gold jewelry have been rising compared to gold ornamental pieces, so too have sales of non-jewelry gold – Gold Coins and bars – as Indian households move to lower-cost ways of accessing the metal.

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