City's wholesale and retail market for bullion, Zaveri Bazaar, witnessed lacklustre trade today as sale of gold jewellery slumped owing to scrapping of Rs 500 and Rs 1000 notes by government as part of its clamp down on black money and corruption.
"After brisk buying at higher rates for gold till late night on Tuesday, the bullion market witnessed lacklustre trading activity today following ban on Rs 500 and Rs 1,000 notes. People are withholding their purchases of gold jewellery till higher denomination notes will come under circulation," said Ajit Shah, a leading jeweller.
The industry is already passing through bad phase due to lower demand despite ongoing wedding season. We hope things will improve in the near future, he said.
The demand for gold during 'Dhanteras', the gold buying festival and Diwali, remained moderate compared to last year.
Retailers in the city blame the slowdown in economy to global factors.
After a muted Navratri and Dusshera, gold demand saw a slight pickup, but it was mostly on the back of discounts and festive offers.
"Government's decision to ban old Rs 500 and Rs 1,000 notes will see people having more faith in the precious metal than the currency notes. Though, the measure has created havoc for a little while, it's going to be good for country," said RiddiSiddhi Bullions Director Prithviraj Kothari.
But perhaps, the biggest factor affecting domestic demand is the continued push towards regulation and accountability that the government is levelling in general, including the gold market.
Of late, various government measures have been
implemented over recent months, in an attempt to regulate and formalise the gold industry.
The government has levied a 1 per cent excise duty on gold jewellery manufacturing and made PAN cards compulsory for jewellery purchases above Rs 2 lakh.
"In addition, it is clamping down on undeclared income, which often fuels cash-based transactions, and working towards mandatory hallmarking legislation to standardise gold jewellery," Kothari said.
On the likely impact on gold prices following Donald Trump becoming new President of US, he said, "Globally, gold prices surged today to its strongest in more than five weeks. It marked gold's biggest single-day gain since June 2016, when it rose as much as 8 percent when Britain decided to leave the European Union.
"Prices surged today as Trump's victory is seen by markets as a major risky event as there's more uncertainty in his direction and his policies. So there may be more volatility with risk assets and over the short-term you may have investors moving to gold.
