With the offtake of gold and jewellery grinding to a halt, dealers are nearly doubling their discounts over the import parity price to offset the pain caused to consumers by high prices and a sliding rupee.
But their gambit to lure back customers in the world’s largest gold consuming nation is not working and most buyers are turning away from jewellery showrooms content with window shopping and awaiting a fall in prices of the yellow metal.
On Friday, the benchmark COMEX spot gold price was hovering around $940 an ounce, up from $925 on Thursday. Considering the rupee/dollar exchange rate at Rs 52, the domestic price comes to around Rs 15,760 per 10 gm, while Mumbai spot pure gold opened with nearly Rs 250-300 discount On Friday at Rs 15,450-15,500. Mumbai spot gold price was at a discount of Rs 50 to the most-active gold contract on MCX, against Rs 100-150 premium when the price was below Rs 12,000 per 10 gm.
“Demand for gold in coin or bar form and jewellery as well has been negligible as we hardly see any customer coming to our shop to buy gold,” said Jitendra Jain, partner, Jugraj Kantilal & Co at Zaveri Bazar in south Mumbai. “We have been offering Rs 400 discount ever since prices crossed Rs 15,000 (per 10 gm) and still there are no takers,” Jain said. Since the beginning of 2009, domestic spot pure gold prices have risen from Rs 13,500 per 10 gm to a record Rs 15,850 on February 21, while in Kolkata the prices rose above Rs 16,000. Surging safe-haven investment demand from global exchange traded funds amid worsening global economic crisis was blamed for the meteoric rise in gold prices.
This was evident from the surge in gold holding with the world’s largest gold exchange traded fund, SPDR, by 250 tn since January 1 to a record 1,029.29 tn on February 26.
The discount offered by dealers on gold was Rs 200-250 at the level of Rs 14,000 per 10 gm, but it has now doubled after prices topped Rs 15,000, Jain said.
Jewellery retailers are also offering similar discounts to dispose stock, slashing their profit margin in the process.
“Medium-sized jewellery shops are offering discounts to keep the business running as they have large fixed operational costs like salaries and maintenance,” said Darshan Zaveri, an Ahmedabad-based premium jewellery maker.
“Importers sitting on large stock are now offering Rs 40,000 discount on 1-kg gold bar, while stockists are offering as high as Rs 50,000 discount on locally refined gold from scrap sales,” said Ashish Mundhra, director of Chennai-based bullion import firm Mundhra Bullion. Despite such discounts, dealers are finding very difficult to clear their stock, he said.
Low demand was also witnessed on electronic spot bullion exchange RSBL Spot—owned by RiddiSiddhi Bullion Ltd, a prominent bullion dealer in Zaveri Bazar. “Our average daily volume has seen a dip of over 50 per cent in the last two months after prices crossed Rs 13,000 per 10 gm,” said Sameer Shah, V-P, business development, RSBL Spot.
Daily volume on the exchange had touched around 80-90Eô by the end of 2008.
Ever since prices crossed 14,000 rupees per 10 gm, retail demand has been falling and above 14,500 rupees, consumers are only selling their scrap gold, Jain said.
“We have witnessed at least 25-30% rise in gold scrap supply for refining,” said Anil Arora, partner, National India Bullion Refinery.
However, due to change in consumers’ price perception that gold could scale 17,000 rupees per 10 gm from 15,000 rupees a few weeks ago, the flow of scrap gold has slowed down in the last couple of weeks, Arora said.
With global prices still $100 away from an all-time high touched in March 2008, domestic prices have been at record levels, helped mainly by over 25% fall in the rupee against the US dollar in last 12 months that made imported gold costlier in India.
People looking to sell scrap gold are expecting global prices to touch a new high of around $1,040 an ounce, which can take domestic prices above 17,000 rupees per 10 gm as the outlook on the rupee continues to be grim, Arora said. Jain said scrap gold sales by consumers have halved from the level witnessed in early February.
As imports have almost come to a halt in the current year, whatever demand that is there is met through recycled metal only, he added. India imported only 1.8 tn gold in January, while there were no imports in February, according to Bombay Bullion Association.
