Consumers Expect Further Fall in Gold Prices

A cautious mood is prevailing among Indian gold lovers just before 10-12 days of Diwali, India’s biggest festival of lights. Jewellers were well prepared right from the beginning of September this year to take full advantage of the festive and wedding seasons with various incentives and schemes to attract the prospective buyers. A positive atmosphere was also created during the September with the gold prices stabilizing at around INR 27,000 per 10 grams.

But on 6th October, price of the yellow metal fell to a 15-month low at INR.26,560 per 10 grams and this was sufficient to trigger some confusion among price sensitive Indian buyers who have now become more cautious and are expecting further fall in the gold prices in near future. The gold demand now seems to be impacted by strong U.S. dollar and its negative effect on gold prices. Besides, the expectations of the U.S. Federal Reserve hiking interest rates have hurt the yellow metal’s appeal.

As far as India is concerned, volatility in gold prices and the expectation of lower prices have been major factors in preventing physical purchases among buyers and a similar mentality has also been prevailing in investors’ demand. Physical buyers in India are now waiting for gold prices to further fall around INR 25,000 to enter the market, analysts feel here. They say that gold prices in India have fallen 20% during last two years from the peaks but they still don’t offer a ‘fair’ value.

But jewellery manufacturers and retailers here are still expecting a ‘fruitful’ festive and wedding seasons in spite of an apparent stagnancy in demand. So the Indian jewellery market seems to have strengthened ahead of Diwali, with gold premiums again gaining thrust as a result of cheaper gold prices.

Jewellers here say that demand during Navratri, a 10-day religious festival that began on September 25th, during which Indian consumers buy luxury goods such as gold, was strong based on cheaper gold prices around INR 26,600 rupees per ounce. Market experts say that despite recent depreciations in the Indian rupee, the gold prices in terms of Indian rupee look quite healthy so demand for gold in India would surely pick up during these festive and wedding seasons.

Mr. Vipin Mehta, Director (Jewellery) of the World Gold Council (WGC) says, “Despite some ups and downs in demand over the shorter periods, overall demand for gold in India has remained fundamentally strong over the years. Although, jewellery demand has gone down by 14% in the first two quarters of 2014 over the same period last year, the sales have remained steady during Akshaya Tritiya and for wedding. However, we are expecting a stronger second half as far as jewellery demand is concerned with the onset of festivities.”

After months of slowdown, leaders here feel that things are finally beginning to move on. All the purchases which consumers had postponed due to some reasons are finally being made.

Posted by Suresh Chotai