BOMBAY, 20 January 2003 — In March 2002, Mr. Shah put some of his surplus money in the stock market and the remaining surplus money he gave it to his wife. Mrs. Shah put all that money in gold. And today, Mr. Shah walks with a frown on his face while Mrs. Shah is beaming ear-to-ear and also seems to look wiser.
This is probably the story in most of the Indian households. All those who had invested money in gold have raked in the maximum profit and has indeed proven to be the best investment too, having given the maximum return on investments.
And this surge in the prices of gold has not yet ended. Gold recently scaled a 6-year high of $360 an ounce. Selling has almost come to a standstill as every seller is now hoping that prices will rise further. This is in complete contrast to the situation in the early months of 2002, when consumers opted to sell when gold touched $300 an ounce.
The domestic market is following in the footsteps of the global market where weakness in the dollar, blazing crude prices and fears of a US attack on Iraq have catapulted the yellow metal to this 6-year high. The fears of an attack by the US and its allies on Iraq has especially led to the bull run since gold is seen as a safe-haven asset.
London-based Gold Fields Mineral Services (GFMS), in its Gold Survey‚ 2002, has attributed last year’s rise in investment to political uncertainties, mainly the US-Iraq conflict, and to economic developments such as falling stock markets, corporate fraud, and a weaker US dollar.
Low interest rates were also thought to be behind the ongoing high level of producer de-hedging as this limits the advantage to be gained from forward sales. And as per GFMS, gold is expected to average around $330 for the first half of 2003 but has warned of a possible volatility.
In the eventuality of a full blown war, the consultancy expects the gold prices to go as high as $370 and if war is averted, the price is estimated to stabilize at around levels of below $310. This spurt in the gold price has also led to a new breed of consumers. It has been seen in these recent months that the buyers as well as sellers have turned extremely cautious and to cushion themselves from the upheavals, had adopted their own strategies. And this attitude of the consumers has thrown up a very significant question — what exactly is the intrinsic value of gold?
It has been seen in the US that stores, despite the knowledge that gold prices have a potential for further rise, are offering hefty discounts to woo consumers. But this has not exactly brought the buyers coming to them in droves. Infact though there were discounts, Christmas sales have been not exactly encouraging. Buyers have turned extremely cautious and are not ready to bite the bait. Americans are more concerned about the economic scenario and thus want to spend less on something which is not exactly a necessity.
Another development noticed is that in the urban areas, consumer preferences have changed. Instead of heavy and traditional jewelry, it is seen that the preference has now shifted to dainty, modern light-weight ornaments. And analysts say that if this trend continues, obviously there will be a shrinkage in gold demand. Also if the current trend persists, there is apprehension that retail demand may be affected.
Those who had invested in the yellow metal have now started to sell in order to realize attractive prices. This may not be good news for the gold producers who have perceived India as a major growth market and pinned hopes on the country for continued firm prices.
And India which is the largest consumer of gold in the world is also behaving quite logically. The spiraling price of gold has deterred rural buying as their incomes have gone down following drought conditions. Infact it was seen in India that those with surplus gold were encouraged to sell and make money.
There is also a section that believes that the current high prices of gold are the result of temporary factors and expect the gold market to become saner in the coming days and stabilize at a more realistic level.
Another development noticed is that in the urban areas, consumer preferences have changed. Instead of heavy and traditional jewelry, it is seen that the preference has now shifted to dainty, modern light-weight ornaments. And analysts say that if this trend continues, obviously there will be a shrinkage in gold demand. Also if the current trend persists, there is apprehension that retail demand may be affected.
Those who had invested in the yellow metal have now started to sell in order to realize attractive prices. This may not be good news for the gold producers who have perceived India as a major growth market and pinned hopes on the country for continued firm prices.
