BOMBAY, 25 September 2006 — Indian consumers are splurging on gold ahead of the festival buying season as a sharp fall in prices and a promising monsoon have ignited demand in the world’s largest bullion market.
For the first time in two months, gold slipped under $600 an ounce on Sept. 11, a price that is proving tempting for consumers, especially with plentiful rains promising good returns on the farm.
The year’s monsoon should boost incomes of India’s 600 million people who depend on agriculture and who account for nearly half of the country’s gold consumption.
“The demand picked up so much after the price fall that supplies of quite a few bullion dealers were exhausted at the end of last week,” said Nayan Pansare, director of Say India Jewelers in Bombay. He said one dealer in Delhi sold around 700 kg in one day last week, three times his sales in the previous festival season.
International gold prices have fallen 20 percent since hitting a 26-year high of $730 an ounce in May, when investors poured money into the market as a hedge against Middle East tensions and inflationary concerns.
Indian purchases may offer some solace to the bullion market as worries about more fund-led selling persisted. “Undoubtedly, seasonal buying does provide some support at this time of year. But we’ve got to say that the weight of influence lies with the investment funds,” said Darren Heathcote of Investec Australia in Sydney.
But Indian traders said the combination of a price fall and the upcoming festival season was giving reason for cheer after a slump in the first half of the year. “This could completely reverse, compared with what we went through in the first half, provided prices do not turn volatile,” said a top industry official.
Domestic gold sales dropped by 34 percent to 328 tons during the first half of 2006, from 498 tons during the same period a year ago, World Gold Council figures showed.
“The demand has shot up by 100 percent over the last fortnight itself, “ said Girish Choksi, an Ahmedabad-based trader, adding that daily purchases had doubled to 1,000-1,200 kg in the western state of Gujarat, from about 500 kg. “By the time Diwali comes in October, there will be plenty more purchases of gifts, jewelry and even gold bars,” he added.
Mukul Sonawala, president of the Bombay Bullion Association, said sales could even rise by 5 percent in the whole of 2006 over last year’s 750 tons due to the surge in festival buying. “The monsoon rains have been good, stock markets are booming and there is a lot of money in the hands of people,” he said.
Gold buying picks up every year from October during Diwali, the Hindu festival of lights, as it is considered auspicious to buy the precious metal. The festival is often followed by a flood of weddings where gold is also in high demand for gifts. Some analysts believe that strong demand for gold could last until December, if prices remained at around 8,700 rupees, or $190, per 10 grams.
Gold edged up above $580 an ounce early this week on firmer oil prices, but chances that gold will test last week’s three-month low of $571.20 are fairly high as funds liquidate.
An analyst with IL&FS Commodities said gold prices were not likely to rise beyond 9,060 rupees per 10 grams until December, which should help to sustain the buying. But he was skeptical about whether sales in 2006 would cross last year’s level as prices were still higher. The average price during 2005 was 6,455 rupees per 10 grams.
“The current price level of $578 a troy ounce will deter many buyers in villages, although prices have fallen,” the analyst said. “The demand is coming mainly from the cities.”