Gold selling down despite price rise

Gold prices have shot up but selling pressure has been limited unlike earlier years.

The lack of sellers is in contrast to events in the recent past - consumers rushed to sell gold at every price rise last year. Sellers are scarce, says industry watchers, because of an optimism that prices will go up further.

Besides, good rains have eliminated the need to encash gold in the countryside, while high volatility in the gold prices and shift in preference for light jewellery has dampened demand.

Consumers are willing to wait and watch before either buying or selling gold. Some pockets in the country are witnessing recycling of gold, but volumes are less compared to the rush witnessed in the price run during December 2002. Sale of rural gold has all but stopped.

Internationally, the gold price has been fluctuating between $395-407 per ounce in last one month, with similar fluctuation in domestic prices.

Domestic price of gold is currently Rs 6070, lower than landed cost of imported gold which works out to Rs 6170 per 10 gram, if the international price of $ 403 per ounce is converted. The weaker price is a result of low domestic demand.

Fresh local demand has come down from last year because people were choosing to replace their old gold ornaments with the new ones instead of buying fresh jewellery owing to high price of fresh gold.

"The recycling of gold for cash is happening only at Zaveri bazaar. In suburban zones, the recycling of gold is restricted to replacement only," said Arvind Kumar, proprietor of Choksi Arvind Jewellers, one of the largest old ornaments buyer at Zaveri Bazaar. Even at Zaveri Bazaar, the rush to sell gold jewellery is a fraction of last year's.

"People are waiting for gold to stabilise before taking any decision," Bhargava Vaidya, bullion analyst at B N Vaidya and Associates said.

The gold price has been volatile in last couple of months, with fluctuations at times going beyond four per cent a day against traditional fluctuation of just two per cent.

In rural Maharashtra, for example, recycling of gold is limited. Demand for fresh gold is down but has not completely dried up.

The demand due to marriages is intact. Demand for gold for investment purposes has however declined. In rural areas, farmers buy gold after the harvest and hold on to that gold.

"In fact, currently the rural community is holding on to whatever gold they have as beginning June they will need to sell gold to buy seeds and fertilisers and other inputs for next kharif season," Sushil Shaha, partner at Saraf Motilal Hirachand, Daund of Pune, said.