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Gold Rush Strong demand expected for the upcoming festive season

Updated: October 30, 2010 4:29 pm

From the ancient Egyptians to James Bond, from Homer’s Odyssey to the Californian gold rush, gold has played a fascinating part in world history and culture for thousands of years. So, it is not surprising that the demand for gold is expected to be strong in the upcoming festive season even when its price is sky-rocketing on a day-by-day basis. This Dhanteras you may find jewellery prices higher from now as the price may continue to rise further.

                “Due to the crisis in Europe, especially countries like Spain, Hungary and Greece reporting dismal performance, the stock markets are completely volatile and hence the demand for gold is set to increase. This increase in demand is said to fuel the price rise,” an expert opined. Though the retailers, traders or the craftsmen have been heavily affected by the soaring price, the jewellery market is still growing in double digits and the volatility in gold prices has not dampened the consumers’ spirit. “The market continues to do good business,” a trader stated.

                According to a report by World Gold Council, India held the first position in terms of buying gold during the first quarter of 2010 in spite of high local currency gold prices. In Q1 of 2010, India was the strongest performing market as total consumer demand surged 698 per cent to 193.5 tonnes.

Demand will remain high in upcoming festive and wedding season

India is a young country. 54 per cent of the population is in the age group of less than 25 years. With such a young population there are bound to be weddings happening in large numbers. The World Gold Council report says that in India, 10 million weddings happen every year and the jewellery bought for these occasions is the backbone of the gold craze in our country as the wearers of gold necklaces are considered belonging to high society. “Jewellery being part of our heritage and culture, it is very much part of the trousseau and hence there is no fall in demand in spite of the high gold prices. With the Indian consumers getting more and more affluent, the demand is expected to rise even during the festive season,” Prasad Kapre, co-chairman, FICCI Gems and Jewellery Committee, commented.

Poor monsoon may hurt rural demand

India’s major gold demand comes from agriculture-dependent households in rural India whose income is tax-free. The middle-aged rural males invest a huge chunk of their savings in gold so that uneducated womenfolk in their houses can encash their wealth without paper documents, legal hassles and having to deal with strangers. But due to the poor monsoon following drought-conditions in some of the states like West Bengal, Bihar and Jharkhand the income from agriculture may fall. This can hurt rural demand.

Yellow metal is attracting a great deal of interest from investors

The outlook for gold as a liquid and reliable asset and as a store of wealth remains highly favourable with high and rising debt levels in Western economies, as well as the renewed threat of recession driving down the US dollar and equities. Price fluctuations can be volatile, particularly if the large institutional investors pull out. If this happens, there is a risk that retail investors who have bought at the top of the market will be the ones who suffer. It is also interesting to note that even those investment-management firms that advocate investing in gold rarely allocate more than 5 per cent of a portfolio to it. Indeed the majority seem to allocate between 1 per cent and 3 per cent of an overall portfolio.

How far is it advisable to buy gold?

For any consumer with good wealth management, gems and jewellery should form an integral part of his portfolio from a long-term perspective. It is up to individuals to decide what percentage of their portfolio should come from gems and jewellery.

India shines globally

India International Jewellery Show (IIJS) is the brainchild of The Gem & Jewellery Export Promotion Council (GJEPC) of India that presents a platform to understand the international market, the way modern Indian jewellery retailing industry is shaping up and the groundwork to prepare for the changing times ahead. The INR 4000 crore sourcing event has made giant strides this year with over 26,000 pre-registered visitors to mark their way to Asia’s second largest gems and jewellery show. “This platform has for several years been the breeding ground for B2B trade amongst the leading players of the gems and jewellery industry globally. Every year, we at GJEPC endeavour to provide that impetus at every level to the industry and surge forward towards creating ‘Brand India’”, said Vasant Mehta, chairman GJEPC. Trade delegations from China, Malaysia, Japan, Iran, UAE, Syria, Morocco, Libya, Bangladesh, Russia, Uzbekistan, Azerbaijan, UK, Hungary and Poland too attended the sparkling event. “With the GJEPC’s consistent efforts, we are bound to establish India as the global gems and jewellery hub soon,” said Chhagan Bhujbal, Deputy Chief Minister of Maharashtra.

The price in the upcoming days will depend on the global economy

According to the report in Press and Journal, the price of gold has still risen by 25 per cent over the last year, by 175 per cent over five years and by a staggering 340 per cent over 10 years. According to a gold trader, the price may cross INR 25,000 per ten grams next six months. Owing to global instability especially in the economy of the EU and the US, sovereign risk and the threat of a ‘double dip’ recession, investment in gold has increased. This is driven by growing demand for jewellery in China and India as well. Concerns over Greece’s public finances and debt-contagion fears in Europe have led to strong buying in particular of gold coins, bars and gold exchange traded funds (ETFs) during May. According to Kapre, it is extremely difficult for any economist or a commoner to predict the volatility in gold prices. “My guess is that till the economies across the world settle down and show a sign of growth the gold prices will remain at high levels and may remain fluctuating for some time,” he said.

 By Samarpita Roy

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