Gold – Ups & Down in 2013
The World Bank and the International Monetary Fund (IMF) may have written off gold as an investment option but the yellow metal shows no sign of losing its sheen in India.
In 2013, not only did gold prices witness an upward march to touch Rs 34,600 per 10 grams, the demand also remained somewhat intact.
Steady demand, despite import restrictions, saw gold prices swaying between Rs 26,440 per 10 grams in April to Rs 34,600 per 10 grams in August.
“Gold will always remain an asset class in India. It will never fetch any negative return. Temporarily, there can be some reverses but in the long term it cannot fade away,” Bachharaj Bamalwa, director, All India
Gems and Jewellery Trade Federation said.
Last year, India imported around 960 tonnes of gold. High gold imports strained India’s current account deficit (CAD) which touched a high of 4.8 per cent of the country’s gross domestic product (GDP) in 2012-13.
India, being the world’s biggest buyer of bullion, imported a record 162 tonnes in May, 2013.
The government raised the import duty on gold to 15 per cent. “This hiking of customs duty may help the economy in the short run but in the long run it does not. The deficit in gold, arising due to hike in import duty is filled by smuggled gold,” economist Siddharth Shankar told IANS.
“Though the CAD looks a little better in the short run, in the long run the parallel economy is booming due to smuggled gold,” Shankar added.
Somasundaram PR, Managing Director, World Gold Council said, “They invest in gold as part of their household savings. It is important to understand jewellery is considered an investment – not discretionary spending for consumption. It serves as collateral for lending to a large class of borrowers in certain socio-economic segments. Look at the wedding and festive season in last quarter of 2013. This suggests the demand outlook remains strong and the long term fundamentals of the gold market are intact.”
During mid-April this year, the price of gold fell to around Rs 26,440 per 10 grams. But later it again spiralled and now it is hovering around Rs 31,000 per 10 grams.
“Over here, the 80:20 rule imposed by the government was a dampener for the industry,” said Bamalwa alluding to a government stipulation that 20 per cent of imported gold by retailers must be exported. “This year even during Diwali or the festive season the business was not good,” Vipul Shah, Chairman, Gems and Jewellery Export Promotion Council, said but conceded that the situation was far from the way the alarm bells were being sounded.
Yet, the industry expects the overall demand for gold in India.