Sept. 6: Prospective buyers of gold looked goggle-eyed today as it surged past Rs 32,000 per 10gm in Calcutta and Delhi as analysts tried to work out whether a complex play of factors was about to set a “new normal” for the precious metal.
The latest rally in gold — the oldest safe house investment — was triggered by the uncertainty that gripped the world’s markets as policy makers in the US and Europe prepared to go into a series of huddles that began today in Frankfurt and will stretch till next Thursday.
These policy meetings will decide not only the course of gold but also the volatile stocks and currency markets.
“Today’s spurt is entirely due to international factors. Demand for gold hasn’t spiked suddenly. There might be a modest rise in demand because of the upcoming marriage and festival season. But the high price of gold will deter many from making purchases,” said an analyst in Mumbai.
“Sales have tumbled by 20 to 25 per cent because of this price surge,” said Ashok Kumar Phophali, general secretary of the Delhi Jewellers’ Association. “But we expect sales to pick up as the marriage season nears.”
Jewellers in Calcutta, however, aren’t reporting any slide in sales.
Subir Sen, chief of BC Sen Jewellers and president of Swarna Shilpa Bachao Committee, said: “Given the trend in price, it is better to buy now as prices could further go up.”
Avijit Chatterjee, manager at the Tanishq store in Gariahat, pointed out: “There is speculation that gold rates will peak around Dhanteras and Diwali. So people are buying jewellery in advance, especially for the marriage season.”
Data show that gold imports peaked at 1,063 tonnes in the year ended March 31 this year as supplies tried to keep pace with demand that has been estimated around 270 tonnes in the first quarter ended June 30. “The price is going up because the demand is high,” said Anargha Chowdhury, director at Anjali Jewellers in Calcutta.
But the situation on the ground will also be dictated by the arcane discussions among the economic policy makers in the US and Europe.
Late on Thursday, the European Central Bank agreed on a new, and potentially unlimited, bond-buying programme designed to lower borrowing costs in Euro-zone countries like Spain and Italy.
The markets will now look for more cues from the US where the Federal Open Markets Commission (FOMC) — the monetary policy-making body in the US — will deliberate next week on a stimulus package to prop up a faltering American economy.
It’s only after the FOMC meeting that global investors will be able to figure out how to allocate their resources among various asset classes, including gold.
The Mumbai analyst believes that if the US Federal Reserve decides on a third round of quantitative easing — an unconventional strategy of trying to stimulate the economy by buying financial assets from commercial banks with newly created money — the price of gold in India could surge to Rs 33,000 per 10gm. But if that doesn’t happen, he said investors would sell gold and book their profits.
The RBI has already raised concerns about the relentless increase in gold imports. The big worry for the central bank is that high gold imports are widening the current account deficit — a situation that occurs when a country’s total import of goods, services and fund transfers is greater than its exports of goods, services and transfers — thereby putting pressure on the rupee.
The government had raised the import duty rates to discourage gold imports. “Gold prices have been rising after the government raised the import duty by 3 per cent this year,” said Rajiv Jain, chairman of the Gems and Jewellery Export Promotion Council of India.
The duty hike appears to have had some impact. Last month, the World Gold Council (WGC) said demand in India stood at 181.3 tonnes, a decline of 38 per cent from 294.5 tonnes in June 2011. However, Mumbai brokerage Emkay said the WGC statistics captured only 70 per cent of the actual demand.
But the sophistry of highbrow finance holds little interest for some parents who were planning to buy gold for their daughters’ marriage. “We had planned to spend about Rs 50,000 on new jewellery when gold was at Rs 28,000 per 10gm. At that time, traders had said that gold prices would weaken... well the opposite has happened,” said Rajesh Poddar in Delhi.