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G. Chandrashekhar

Mumbai, April 24 Jolted by the sharp decline in physical demand for gold resulting from sustained high prices, suppliers are banking on Akshaya Thrithiya, an auspicious day in the Hindu calendar, to prop up sales. It falls on April 27.

But there is every chance, the market may fare disappointingly.

In the domestic market, gold prices have stayed in the Rs 14,000-15,000 for 10 g range for sometime. At these high prices, there has been demand compression, especially from household buyers. Jewellery demand growth is muted.

No wonder, there was hardly any import during February and March. If anything, scrap sales are rising. Of course, speculators continue to bet on the yellow metal, as is their wont; but there are signs that even they are now beginning to feel disappointed over recent price performance.

This year the usual hype about gold purchases on the auspicious Akshaya Thritiya day is somewhat muted. One is witnessing less-frenzied publicity in the media this time.

Interestingly, attempts began in the last couple of years to project platinum (another precious metal) as an alternative to gold.

Although the white metal is making small inroads in the jewellery sector, there is nothing to suggest it is taking gold’s market share away.

On the international front, one has been hearing hyped-up statements about the performance of gold and how prices could cross the psychological $1,000 an ounce.

Investor interest and safe haven buying have always been trotted as factors propelling gold prices higher.

It was on February 20 this year that gold prices touched $992/oz, a mere $10 shy of the all-time high reached a year ago. The uptrend reflected the support the metal had gained as a safe haven asset because of uncertainty about the health of the global financial markets and the global economy.

Following a series of measures initiated by many governments, there is now a sense of cautious optimism that the severity of the crisis is waning. This optimism, in addition to a surprisingly strong dollar, has proved negative for the yellow metal. If anything, the price performance of the yellow metal has left much to be desired.

The price rise has been far below expectation for several weeks. For most part of April, gold rates stayed below $900/oz. Prices are struggling to gain momentum.

According to experts closely tracking the market, there is evidence that the poor performance of gold is testing the patience of investors.

Significant liquidation of gold exchange traded product (ETP) holdings in the past month is a case in point. Fresh ETP flows have stalled, while further liquidation cannot be ruled out.

A pick up in the stock market and return of risk appetite is sure to see investors flocking to commodities that provide better returns than gold.

With economic slowdown and loss of jobs and incomes, physical demand for the precious metal is sure to take a hit in India.

As food inflation is still high in the country, the purchasing power is not strong enough. High prices discourage buyers.

Despite a weak macroeconomic setting, market participants overseas and in India are betting on festival demand and marriage season in India to support the metal. Under Indian conditions, to what extent buyers will flock gold shops on April 27 remains to be seen.

More Stories on : Gold & Silver | Outlook | Events

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