By James Mathew
Gold sales in the Indian market have been affected by the relatively high prices compared to its international price
Despite overall gold sales remaining subdued in the last two months, bullion sales in the Indian market have seen about 15 percent jump during this period, signalling an early trend of investors coming back to the yellow metal for a safe and steady return in the coming months, according to traders and market analysts.
The total gold sales in October 2018 is estimated to be about 70 tonnes in volume and about Rs 22,000 crore (approx $3 billion) in value, according to the quick estimates by Indian Bullion and Jewellers Association (IBJA). The sales in September 2018 were slightly less than the October figures.
The spurt in bullion demand in the recent months coincides with the on-going turmoil in the Indian equity market, which has seen a fall of over 4,000 points in the flagship BSE S&P index Sensex in the last 3-4 months - impacted by rising crude oil prices, weakening rupee and uncertainty over the prevailing political situation.
The Sensex, however, has made some recovery in the last few sessions, regaining the 35000 level, after dropping to a little over 33,000 level a couple of week ago.
Historically, jewellery sales account for 75 percent of the total gold demand and sales and bullion sales accounting for the remaining 25 percent sales in the Indian market.
The spike in bullion sales in the recent months is registered in the Western and Northern India markets, further giving credence to the trend that the demand pull is mainly on account of purchases by investors.
In Southern India, where people traditionally wear lot of gold jewellery, the demand continues for jewellery only, with no or negligible hike in bullion demand for the usual level.
“The last two months have shown a shift towards bullion sales showing increased demand, though the overall gold sales remained either flat or slightly declines,” Surendra Mehta, Secretary, Indian Bullion and Jewellers Association, told Arabian Business.
The growing demand for bullion is mainly seen in the western and northern regions, he said.
The bullion sales have shown an increase of about 12-15 percent, whereas gold jewellery sales have shown a decline of about 3-5 percent in the previous two months (September and October), Mehta said.
Gold sales in the Indian market have been affected by the relatively high prices compared to its international price, on account of sliding rupee value and an added cost by way of import duty. While rupee value has seen s decline of about 15 percent in the last 12-month period, India imposes a 10 percent duty on import of gold mainly to control the country’s widening current account deficit.
“With the continued uncertainty in the stock market due to the directions of crude prices and rupee value following the US economic sanctions on Iran, coupled with the anticipation over the outcomes in assembly elections in 5 Indian states, we expect more investments start coming to gold and to some extent silver also,” Kedia Comrade MD, Ajay Kedia, told Arabian Business.
Kedia said the table on movement of gold prices in India since 2010 show that prices were in the red in the month of November consistently since 2012, despite the Diwali and marriage season generally falls in this month.
“Gold as an asset class has been in low demand in the last 6 years or so. There is a strong possibility now for the cycle could be turning in favour of gold, with increased interest from investors seen in the coming months. Different asset classes are preferred in different investment cycles, depending on investors’ outlook” Kedia said.
Some of the analysts are, however, not subscribing to the theory that gold could provide the next big rally for investors.
“Gold has always been used as a hedge against US dollar and with the US currency going strong currently, there is no possibility for gold prices to firm up internationally. However, in India, investors may be getting back to gold as a diversification of their investments in the backdrop of the uncertainties in the equity market,” M R Rajaram, a leading financial consultant and former finance director of ICI India, told Arabian Business.
Meanwhile, most of the small retailers expect jewellery sales to be lackluster during this year’s Dhanteras, being celebrated today, and the Diwali and the approaching wedding season in India because of rising gold prices in India.