Gold prices touched a three-year high of R31,750 in Delhi on Wednesday as people flocked to jewellery stores since last night when the government made R500 and R1,000 notes invalid as legal tender. The sudden move by the government raised the appeal of the precious metal.
Some jewellers said they had to keep the stores open until late night to cater for demand. Interestingly, one of the jewellers in Delhi said he heard some other jewellers charging as high as R45,000 per 10 grams last night, taking advantage of the government move, although he hasn’t done so. He said prices effectively shot up to that level because people exchanged R500 and R1,000 notes even for lower value while buying the precious metal.
However, other jewellers that FE spoke to denied knowledge of any such thing. Nevertheless, it’s believed that some people may have offloaded a portion of stashed cash to buy gold last night, fearing a hardening of crackdown on black money in the coming days.
Gitanjali Gems Chairman and Managing Director Mehul Choksi said the government’s decision will create panic for a little while but in the end, it is going to be good for the country. The jewellery industry will thrive as people will have more trust on jewellery than currency notes, he added.
PC Jewellers Managing Director Balram Garg said this is a very good decision for the organised sector in the longer term. Other jewelers say people will be encouraged to seek purity in gold. All India Gems and Jewellery Trade Federation (GJF) Chairman Sreedhar G V said the move will encourage unorganised jewellers to get organised. Over 70% of jewellers in the country are in the unorganised sector.
The decision to discourage cash transactions will prop up gold demand, which was estimated to hit a seven-year low to remain in the range of 650-750 tonnes in 2016, according to the World Gold Council. The lower projection came after a 28% crash in demand in the quarter through September from a year earlier to 194.8 tonnes. However, the London-based miners’ body on Tuesday predicted a rebound in demand in 2017 and that the rise in consumption since Dhanetras points at a revival. In such a situation, the government’s move will only help the precious metal further.
Globally, gold prices are expected to get some support from Donald Trump’s victory in the US. Natalie Dempster, managing director (Central Banks and Public Policy) at the World Gold Council said:”Financial markets have fallen sharply in response to Donald Trump’s election as the 45th President of the United States. Equity markets are down notably in Asian and early European trading. Gold has, by contrast, increased, outperforming other assets, including other safe havens. It is currently trading at over $1,300/oz, compared with $1,275/oz before the vote counting began.”