The Hindu Business Line : Of festivals & rush for gold

IT is that time of the year when gold purchases in the form of jewellery begin to pick up. India, the world's largest market for gold, has the utmost fascination for gold jewellery, much of it dictated by religious and social compulsions.

But mining companies and market functionaries are not complaining.

Gold demand in the country appears to be good in the coming months ahead of the approaching festival season.

With a fairly good monsoon cover across the country (barring the calamitous flooding in Mumbai and neighbouring areas), the farming community is wont to buy precious metals mainly in the form of jewellery post-harvest.

Gold recently touched a peak at $449.30 per ounce in the world market on fund buying and high crude oil prices.

Though gold demand is largely price elastic in India, traders expect demand to pick up around August-end for both gold and silver.

Fresh demand for gold normally picks up in August and continues to remain firm until Diwali.

In August, standard gold prices in Mumbai also moved up to a recent high of Rs 6,360 per 10 gram, up by Rs 250-300 following firmness in the world market.

Gold buying has been good so far from jewellers this month, as most of jewellers were restocking their jewellery for coming season.

Gold prices are expected to remain firm and the downside for the yellow precious metal is quite limited, an analysis by Natexis Commodity Markets Ltd said.

"Prices could easily stay above the $400-mark in 2005, as physical offtake responds to any price dip and supply side changes become neutralised. The ability of the jewellery market to drive the market higher remains doubtful, which just leaves investment as a supporter of prices above $450," it said.

Natexis Commodity Markets is forecasting an average annual gold price of $430 per ounce in 2005 followed by $400 in 2006.

As for silver, this metal is likely to be dominated by changes in short-term investment.

Natexis believes that with investor interest in commodities expected to be robust in the short-term, silver is likely to find strong buying.

"This will manifest itself in the silver price tending to track moves in the dollar and in other commodity prices, chiefly gold and the base metals. There is to a degree a divergence between some of these forces. It is perhaps easier to envisage a scenario in which base metal prices, particularly for copper and nickel, retreat substantially," Natexis said.

Indian demand for silver is expected to pick up. At the same time silver jewellery consumption in Europe and North America are on the rise, Natexis said.

"The greatest gains this year, however, look to have been derived from very strong growth in industrial offtake. This has come from a wide variety of sectors, with a boom in the construction and the electronics industry mainly in China or elsewhere in East Asia,'' it said.

The goldsmith's skill was developed over 2,500 years. The artisans, according to the World Gold Council (WGC), worked the gold by hammering it into fine sheets. These were cut with stone shears and then decorated by embossing.

"Between 500 BC and 500 A.D., the Nazca society developed in southern Peru. Their goldsmiths continued to create pieces by hammering, but they also discovered casting. The gold was melted and poured into a mould, usually ceramic, and then the article was finished by polishing and burnishing," WGC said.

Ornaments were not used for adornment but more as symbols of wealth and power. However, today jewellery is the main form of gold. "Today, gold jewellery is more a mass-market product, although in many countries still treasured as a basic form of saving. Jewellery fabrication is the crucial cornerstone of the gold market, annually consuming all gold that is newly mined," WGC said.

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