Despite import curbs, Gold may regain lost lustre this festive season

Aug 24 2014, 07:58 IST
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Gold demand in India is expected to pick up in the second half of 2014. Reuters Gold demand in India is expected to pick up in the second half of 2014. Reuters
SummaryDemand expected to pick up this festive season despite import curbs

Come Diwali, gold may regain some of its lost sparkle. Despite a 39% drop in the June quarter, gold demand in India is expected to pick up in the second half of 2014, as consumers who have deferred purchases anticipating prices to fall further could be back in the market. A favourable base (gold demand in the second half of 2013 crashed to 380 tonnes compared with a record 595 tonnes in the first half) and the better-than-expected monsoon will also help.

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“Last year, don’t forget, Diwali was preceded by very high demand in the first half and imports hit a record in April and May. Also, jewellers said they won’t sell coins as anti-gold sentiment was at its peak. This year, all those things are gone, people who had deferred purchases are also coming back to the market. So I expect a better Diwali,” World Gold Council managing director (India) Somasundaram PR told FE.

He said the RBI’s 80:20 rule imposed since last July, which mandated that at least one-fifth of imported gold must be kept aside for re-exports, hit bulk consumers even in the build-up to the festival seasons in 2013. Consequently, demand crashed after record purchases in the first half.

But now that the central bank has allowed more entities to import gold, premiums have fallen and supplies have eased, much to the relief of buyers.

Echoing the sentiments, Rajesh Khosla, managing director of the country’s largest gold refinery MMTC-PAMP, said: “Underlying gold demand remains robust, and the restrictions imposed on gold imports can’t suppress gold demand in the long run. The second half of the year is expected to be better.”

Jewellers said while it was too early to give a precise forecast about demand this Diwali, it would be better than a year before, when most of them had witnessed up to 40% drop in sales.

Suvankar Sen, executive director at Senco Gold, eastern India’s largest jeweller, said earlier this year people were expecting the new government to trim the import duty on gold from 10% and the central bank to ease the 80:20 rule on purchases from overseas. This prompted them to hold purchases, as they thought such measures could reduce prices to as low as R25,000 per 10 grams.

However, now that the government doesn’t seem to be in a mood to relax the restrictive measures anytime soon, consumers may scour gold

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