Wondered why large jewellery brands are suddenly showering discounts when gold prices are rising?

It is probably because they are getting a discount of over ₹1.18 lakh per kg of bullion they import owing to weak demand. The current trend is in contrast to the situation a few months ago, when jewellers paid a premium of $3 per troy ounce to source bullion. The discount on bullion jumped to $42 an ounce on July 8 from $10 on June 1, Ncdex data show. However, a few bullion traders offer discounts as high as $80-100 an ounce in Ahmedabad, said industry sources.

Weak demand from jewellers has been compounded by a rise in bullion smuggling on the back of 10 per cent import duty, which has increased supply.

Gold prices on Monday touched ₹31,370 per 10 gm, marginally below the three-year high of ₹32,455 recorded earlier this month.

Mukesh Kothari, Director, Riddhi Siddhi Bullion, said the sharp rise in gold prices in the past few weeks had prompted many people to sell their old gold jewellery. About 500 kg a day of gold is being recycled by consumers, and this too is driving bullion dealers to offer discounts, he said.

“The supply has increased because jewellery buyers have become sellers themselves. This will result in lower gold imports, which already fell to 15 tonnes in June,” he said.

“People are not interested in buying gold as stock markets are doing well. Buyers think the current high gold price levels are unsustainable and expect a fall soon. Bullion dealers are offering nearly $100 discount, but still they cannot find buyers,” said a jeweller.

Paras Bothra, Vice-President at Ashika Stock Broking, reasoned that the Seventh Pay Commission-recommended payout may leave government employees with higher disposable incomes, which may flow into gold.

“One should consider investment in gold only as part of portfolio diversification and not to make quick money,” he said.

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