Brisk gold jewellery sale seen this Diwali

Wait for a price fall seems to have ended for now, trade expects demand revival to continue for some months

Consumers are again buying gold jewellery, after a three-month wait for prices to fall.

Gold is now quoted around Rs 27,500 for 10g in major cities, up almost Rs 1,000 in a week. This increase gave a feeling to prospective buyers that the price had bottomed out for the near future.

“The increase triggered buying that was waiting, especially festival and marriage-related buying in gold jewellery. Demand is estimated 20 per cent higher compared to last year’s Diwali,” said Haresh Soni, president of the All India Gem and Jewellery Trade Federation.

Indicating an increase in demand, the premium for physical delivery of gold has risen from $5-10 an ounce a few weeks earlier to $20-25 an ounce in the past few days. The premium indicates demand is higher than supply. In September, gold imports had increased to 95-100 tonnes, in anticipation of an increase in demand.

Dhanteras, associated with the goddess of wealth, and Diwali, the festival of lights, are both considered auspicious occasions to buy gold. During muhurat trading (to mark the new Hindu year) on the Multi Commodity Exchange (MCX), the largest platform for trading in gold, gold futures volumes jumped significantly. Total turnover of the MCX more than trebled on Thursday’s muhurat trading to Rs 5,211 crore as compared to Rs 1,591 crore on the muhurrat trading last year (November 3). Total business under the gold trading segment recorded a 150 per cent increase to Rs 1,551 crore this year. Turnover from silver contracts rose to Rs 840 crore from Rs 334 crore last year.

  Stringent import curbs, along with a 10 per cent tariff, had resulted in a sharp fall in gold import in recent quarters. Premiums for physical delivery at an point went up to $180-200 an ounce. Last Diwali, these were $100 an ounce.

Soni sees an improved demand scenario for two more quarters or till end-May, when the marriage season also ends.

With gold gaining attraction, the exchange sector is also looking for revival. Last year, just a day before Diwali, MCX’s promoter and visualiser, Jignesh Shah, was forced to resign and market participants were not enthused to trade on it. Since then, new investors such as Kotak Bank have entered and there is a perceived consistency in management. The National Commodity and Derivatives Exchange (NCDEX) also saw a rise in muhurat trading, of 20 per cent from last Diwali’s Rs 1,148 crore.

The exchange sector had seen a sharp drop in volumes this year, to the lowest level since 2009-10. However, Wednesday’s decision by the Forward Markets Commission to increase position limits for commodity futures and an earlier decision of the Financial Stability and Development Council’s sub-committee to allow physical market foreign traders and domestic financial intuitions into the commodity futures market will have a positive impact. It should help improve depth and participation, said Samir Shah, managing director of NCDEX.