Gold purchases in India, the biggest consumer, will probably fall in this year’s festival season as import curbs reduce supplies and demand cools after surging in April, when prices slumped into a bear market.
Sales of coins and bars may decline to as little as 25 percent of the year-earlier level, according to the All India Gems & Jewellery Trade Federation. Buying and gifting gold in the country is considered auspicious and the most favorable time is today, the festival of Dhanteras, two days before Diwali.
Gold is heading for its first annual decline in 13 years as some investors lost faith in bullion as a store of value and the U.S. Federal Reserve indicated it will reduce monetary stimulus. The precious metal rose 70 percent from December 2008 to June 2011 as the Fed pumped more than $2 trillion into the financial system to boost the economy. Consumption in India, which imports almost all the bullion it uses, accounted for 20 percent of global demand in 2012, the World Gold Council says.
“Jewelers say demand for coins and bars this season could be only 25 percent of what they saw in the festival season last year and jewelry demand will be moderate,” said Haresh Soni, chairman of the federation, which represents about 300,000 jewelers, bullion dealers and brokers. “Jewelers are quite alert that if they sell coins, they will not get raw material to make jewelry,” he said Oct. 30.
Buying from October to December was 261.9 metric tons last year, with coins and bars making up about 40 percent of the total, according to the council. Imports slumped after the government linked shipments to re-exports in July and increased taxes on overseas purchases. Prime Minister Manmohan Singh tightened the curbs after rising demand helped to widen the nation’s current-account deficit and pushed down the rupee.
Shops in Zaveri Bazaar, India’s biggest bullion market in Mumbai, saw fewer customers this year and people were buying only smaller pieces, jewelers said.
“We have seen a drop of nearly 50 percent in purchases,” said Prithviraj Kothari, managing director of Riddisiddhi Bullions Ltd. “People haven’t come to buy as much as last year because of the perception that prices could have come down more. Since people have to buy because it is an auspicious day, they are buying silver, but that also saw a drop in demand.”
Dwarkhadas Ramanlal, 50, a regular buyer of silver every year on this date, said he will purchase 10 grams (0.4 ounce) of the metal, compared with 50 grams last year.
“I am buying only because it is considered to be auspicious,” Ramanlal said while standing in line with 50 others in the market. “Usually it takes me more than an hour and half to reach the front of the shop, but today I think I’ll be through in 30 minutes. The crowd is not much today.”
“Demand is a little bit less this year, as the wedding season was much longer last year,” said Mehul Choksi, chairman of Gitanjali Gems Ltd. (GITG), from Mumbai. “A lot of purchases were advanced earlier because of the price fall in April.”
Gold for immediate delivery in London slumped 22 percent this year to $1,306.74 an ounce and reached $1,180.50 on June 28. Futures on the Multi Commodity Exchange of India Ltd. (MCX) were little changed at 29,825 rupees ($482) per 10 grams, 15 percent below the record 35,074 rupees on Aug. 28.
Imports were 23.5 tons in October, Finance Minister Palaniappan Chidambaram told reporters in New Delhi today. Purchases of gold and silver fell to $800 million in September from $4.6 billion a year earlier, according to the Commerce Ministry. The government plans to keep imports to 800 tons in the financial year ending March 31 from 845 tons a year earlier, Economic Affairs Secretary Arvind Mayaram said Oct. 1.
Lower supply boosted premiums to a record in India, the federation’s Soni said. The fees that jewelers pay to buy gold from banks and bullion dealers were $120 an ounce higher than the London cash price now, compared with a discount of $60 in September, he said.
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