India's Festive Gold Buying Starts Slowly

Buying Gold typically takes off as post-harvest festivals begin in world No.1 consumer, India...

The ONSET of the festive season in the Indian subcontinents has left India's jewelry makers bewildered, says Rutam Vora for Commodity Online in Ahmedabad, India.

Demand for the yellow metal did not match the expectations of the bullion marketers, who believed jewelry buying during festivities to shoot up despite peaking up prices.

Despite a dip in Indian Gold Prices at the start of this week, the overall trend showed steep rise over past several months. The yellow metal has appreciated by 6% against the Rupee so far during the year, and the onset of two big festivals has failed to draw heavy Indian jewelry buying.

Indian households are the largest gold consumers in the world. But speaking to CommodityOnline over the phone, Suresh Hundia – president of the Bombay Bullion Association (BBA) – says that the beginning of the festive season in the Indian subcontinent has seen demand sluggish owing to higher Gold Prices.

"We see only 50% demand from what we had seen last year. The jewelry buying has not picked up well in the country despite the festive season standing right around the corner. This is mainly due to peak prices, which are hovering at around Rs.18,800 per 10 grams," Hundia said.

However, market analysts are of the opinion that the Gold Prices will not fall so significantly in the near term from its current levels. Hence the present prices might not discourage buyers to the extent that has been feared.

Industry experts are also of the opinion that India's buyers may not give too cold response to the festive discounts and offers given by jewelry stores.

"There does not seem to be any sudden fall in the prices, despite the weak demand in the market as the international cues are playing strong role in determining the domestic prices of the yellow metal. I see Gold Prices being in the range of Rs.17500 to Rs.19200 till the major Indian festival of Diwali," Hundia told CommodityOnline.

Considering regional disparities, gold demand in Gujarat has typically remained upbeat right from the start of festivities, beginning today in 2010.

Gujarat, which has a large population of Malayali-origin has seen its gold demand rising significantly due to Onam festivities accompanied by the festival of Rakhi, which falls on Tuesday, August, 24, 2010.

Manoj Soni – director of AB Jewels, a prominent jewelry mall here in Ahmedabad – informs us that jewelry demand has been upbeat in spite of Gold Prices ruling high at Rs.18800 per 10 grams.

"Looking at the rush for jewelry buying, it seems that people have almost accepted the current prices and are all set to welcome the festivals with open arms. I believe only Ahmedabad will witness bold buying to the tune of 100 tonnes ahead of Raksha Bandhan tomorrow," said Soni adding that most of the buying was seen in the jewelry form and for the gifting purpose.

Taking into account Hindu mythology, the current period is considered as a peak time for gold purchases. Other industry experts maintain that Indians buy more gold during the current period, as it is considered inauspicious to Buy Gold in the 'Shraddha Paksha' (a 15-day period in the month of Bhadarva) which falls just before the marriage season. This prompts buyers to Buy Gold well in advance and also at a cheaper rate.

The prices usually start picking up days before Diwali festival, which come after about a month after 'Shraddha Paksha'. According to Soni:

"Today, the buying is happening at Rs.18870 per 10 grams. But we believe further upside in the prices to the tune of Rs.500 to Rs.1000 per 10 grams by Diwali as by then the demand situation would further improve."

Domestic Indian Gold Prices, which rely on imports and "scrap" recycling of consumer jewelry, have been rising alongside the international price. Dollar prices have shot up by 12% so far during the year.

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