‘Precious’ gold may eclipse Diwali sparkle

‘Precious’ gold may eclipse Diwali sparkle

Mumbai: India is nearing its peak gold sales season just as world bullion prices reach their highest ever, testing consumer demand in the world’s biggest buyer.

The biggest gold-buying day of the year, Dhanteras, falls on 15 October, when purchasing gold is believed to invoke prosperity. Two days later the festival of lights, Diwali, will also see heavy sales as people worship the Hindu goddess of wealth, Lakshmi.

But the high prices—nearing the psychologically important level of Rs16,000 ($342) per 10 grams, but not yet at a record high in rupee terms—have tempered sentiment this year, with everyone from overseas suppliers to small jewellers downcast because sales thus far have been poor.

Here are some key questions and answers on India’s gold industry:

How much gold does India need every year?

Data varies as the industry is diverse and fragmented, but different trade agencies put India’s imports between 400 and 800 tonnes a year. An additional 200 tonnes is circulated within the country from stocks held by people as they sell items such as old jewellery or bars purchased for investment.

How much will it import this year?

Some estimates indicate 2009 may be the worst year since 1997 when the trade was liberalized and banks got licences to import gold. ICICI Bank, the third largest importer, said in an interview with Reuters, gold imports may be around 500 to 550 tonnes this year, compared with 712.6 tonnes in 2008, as per data from the World Gold Council.

Why is India’s gold demand down this year?

India’s gold demand has shrunk owing to volatile prices this year. On 20 February, gold in the local market touched Rs16,040 ($343) per 10 grams, the highest in history. Also, high inflation in late 2008, the global economic turmoil and a weaker monsoon season that affected crops, curtailed people’s appetite for gold.

Does India have a season for buying gold?

Gold sales are the highest in the August to October festival season. People’s spending power gets a boost from company bonuses and the summer-sown crop’s harvest in October. Marriages are generally held throughout the year but some auspicious days see a flood of weddings where the metal forms an important part of the bride’s trousseau. Lesser buying occurs from April to June during the Akshaya Tritiya festival and the winter-sown crop harvest.

What price level could draw Indians into buying gold?

Although the busy season will be over after Diwali, weddings scheduled until December are expected to see gold sales continuing. Indians are used to seeing gold prices go up year on year, but they shun sudden price surges. At this point, the psychological mark being eyed is Rs15,000 and traders say a break below the level would be greeted by a flurry of buying. On Wednesday, gold was at Rs15,876.

What will happen to gold demand in 2010?

Industry members believe if prices soften from current levels next year, at best, India’s demand would go back to normal, which means it may import about 700 tonnes of gold. But this may not show in the first half of the year due to the effects of poor monsoon rains this year and also because the first half has fewer festivals and a smaller harvest.

Is anything changing in the way Indians buy gold?

Gold is facing intense competition from lifestyle goods such as mobile phones and consumer durables. Higher earning capacities have also led to shifts -- while prosperous Indians are moving to diamonds from gold, a lot of low wage earners are able to buy gold for the first time in their lives.