High bullion prices notwithstanding, gold jewellery remains unarguably the most important item in the trousseau of an Indian marriage. But, with less than 220 tonnes of gold imported this year (as against 420 tonnes last year), how did the country manage to get all the jewellery made?
“The answer is simple. Up to 250 tonnes of gold, already in possession of Indian families, got recycled this year for making new jewellery. There is a symbiotic relationship between gold prices and the volume of gold that gets recycled every year in our country. Last year, when gold prices were not that high, scrap generation was around 150 tonnes,” said Amit Sen, director of one of the country’s leading jewellery houses B C Sen & Co.
Standard gold, at a tad less than Rs 17,000 per 10 gm, is out of bounds for many Indian families. But the common knowledge is Indian households, cutting across all income groups, are sitting on an inventory of at least 20,000 tonnes of gold built over many generations. Jewellers believe that they will be required to work with more scrap gold in the days ahead, especially during the wedding season.
“We have put to use all the knowledge in our armoury to retain customers by making lighter and lighter jewellery as bridal gifts. I am afraid this lightness cannot be stretched any further. But, we can still make lighter stuff for casual or fashion wear for the young belles,” said Sen.
Jewellers point out that high gold prices could be mitigated to some extent, if Indian women start wearing jewellery made from 18 or 14 carat gold. But, they show a distinct dislike towards such jewellery since it does not shine like a 22-carat product. “What is in vogue in the US or Europe is a resounding no-no with Indian women,” said Sen.
Globally, 60 per cent of gold sold is used for making jewellery. However, in India, nearly 90 per cent imports of the bullion finds its way to a goldsmith, through jewellery houses, for making ornaments. India is a marginal producer of gold and the demand for the precious metal here is met almost entirely by imports.
Though the country’s gold imports were halved this year, jewellery houses, whose principal source of revenue are the ornament-making charges, did not experience a fall in custom. This is due to the rising volumes of recycled gold. But jewellers are now fearful of chinks appearing in ‘the Hindu reverence for gold’ four to five months down the road, if the precious metal remains this expensive.
As Indians have started retreating from the gold market because of high prices, China, according to metals consultancy GFMS, is going to replace India as the world’s largest consumer of the precious metal. Backed by strong investment demand of 83 tonnes, China will end 2009 with gold consumption of 432 tonnes, against India’s 422 tonnes. However, the Indian consumption figure does not include the Reserve Bank of India’s purchase of 200 tonnes in October.
According to trade officials, in contrast to India, the demand for jewellery in China has been growing strongly since the last four years. Shanghai Gold and Jewellery Trade Association has told some visiting Indian jewellers that Beijing is encouraging gold buying in rural areas, too, where disposable income is rising. A point not to be missed is that China earlier overtook South Africa in 2007 to become the world’s biggest gold producer.
In the meantime, there is a concern in the government here that high gold prices will be a temptation for many jewellers to bill customers for 22-carat gold, while actually giving them less caratage. Under pressure from jewellers, especially in semi-urban and rural centres, the government has deferred compulsory hallmarking of gold jewellery.
