Move to ensure raw material availability

Jewellery retailers across the country have stopped selling gold coins and bars in order to discourage investors from buying and ensure availability of the raw material for jewellery manufacturing.

In India, eight to 10 per cent of the gold imported is purchased as coins or bars for investment.

“As it is, the gold supply situation is very tight. To ease the situation a bit, a majority of retailers have agreed not to sell gold coins and bars for at least another six months,” Haresh Soni, Chairman, All-India Gems and Jewellery Trade Federation, a premier trade body, told Business Line. “This will also go a long way in helping the Government’s efforts to curb gold imports,” he added.

The move, coupled with the shrinking demand for jewellery, is expected to bring down gold imports further in the months to come, contrary to general expectation. “Imports may drop further to 28-30 tonnes this month,” Soni said. In June, gold imports were down by 36 per cent at 32 tonnes, against 50 tonnes in June 2012. This is 80 per cent lower than the record May imports of 162 tonnes. Besides, it is also expected that gold price will slip further in the next couple of months.

Old gold welcome

The federation has also advised all its members to incentivise consumers who bring in old gold jewellery for exchange. Due to the reduction in the price of gold, hardly any consumer wants to trade old jewellery for new ones. As a result, the amount of gold that comes for recycling has come down significantly in the last few months, he said.

Until April, retailers were able to purchase gold almost on the spot, that too on a 180-day credit (on less than six per cent interest). Now, in addition to the cash-and-carry system, there is a waiting period of one week to take delivery of gold from banks. “Besides, as a result of the increased financial cost, we also have pay a premium of $6-8 an ounce to the banker, against $1-1.25 till a few months ago,” said Soni.

The investment demand for gold is already going down, “as the metal is losing its safe heaven haven status with sharp correction in prices”.

The trade’s decision to curb sales of bullion will further bring down the demand, said says Reena Rohit, Head of Non-Agri Commodities and Currencies, Angel Commodities Broking.

She said investors are very cautious now, and the sentiment will continue to remain bearish.

The lack of buying support may bring down the price of the yellow metal further in the weeks to come. According to her, if it breaches the Rs 25,200 (for 10 grams)-level, it may drop to the levels of Rs 24,000 in the following weeks.

(This article was published on July 10, 2013)
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