Jewellery sales climb as bullion price falls
Gold prices declined more than 3 per cent in March-end to trade at a six-month low of Rs 28,750 per 10 gram. And thanks to fall in bullion prices, jewellery sales have increases by 20-25 per cent in the same week, as buyers see limited potential for further fall from the current level. Gold was trading near a six-week low on March 31and was headed for its first monthly decline this year on growing optimism about the U.S. economy and weak physical demand in Asia.
The trend percolated to India from overseas markets, where investors sought refuge in other asset classes, including equities and currencies due to easing of geo-political tensions between Russia and Ukraine.
Spot gold in London also fell 2.9 per cent to close at $1,295.27 an oz. The seasoned buyers and opportunistic considered the price decline an opportunity to buy
Both opportunistic and seasoned buyers found this price decline an opportunity, considering the present level as a realistic one.
Gold near six-week low, down 3 per cent in March
Gold was trading nearly six-week low on March 31. It headed for its first monthly decline in 2014 on growing optimism about the US economy and weak physical demand in Asia. Gold has lost nearly $100 an ounce in the last 10 trading sessions, moving further away from a six month high hit mid-March.
Meanwhile, global advisory firms have lowered their gold price forecasts. While Goldman Sachs hints gold price to average lower this year at $1,050 an oz, Standard Chartered revises gold price forecasts eight per cent downwards to $1,225 an oz.
According to CPM Group, gold averaged at $1,409.43 an oz in 2013, down 15.6 per cent from the average gold price of $1,670.15 an oz in 2012. This was the first annual average decline for the yellow metal in more than a decade. “Silver has very limited potential of further price fall. But, on a rebound, silver price will move up more rapidly than gold or any other metal in the group,” said Gnanasekar Thiagarajan, director, Commtrendz Research.
The metal’s safe-haven demand had been bolstered earlier in the year when fears over economic growth in the United States and emerging markets hurt global equities, and tensions between Russia and the West were high. “Prices will go down further since those factors supporting gold in the first quarter are weakening now, such as geopolitical issues, and the emerging markets crisis,” said Chen Min, a precious metals analyst at Jinrui Futures in Shenzhen.
Physical demand in Asia could pick up if prices fall to $1,180-$1,200, Chen said. Spot gold fell 0.1 percent to $1,291.80 an ounce by 0706 GMT, not far from a six-week low of $1,285.34 hit in March-end. It is down nearly 3 per cent for the month.
Recent U.S. data has been strong, indicating that the economy is recovering well after severe weather conditions. Federal Reserve Chair Janet Yellen indicated earlier this month that interest rates could rise in the first half of 2015. Low interest rates, which cut the opportunity cost of holding non-yielding bullion above other assets, had been an important factor driving bullion higher in recent years. Physical demand in top bullion buyer Asia has been quiet due to the recent volatility in gold prices, which have edged lower for two straight weeks.
Only Japan has seen some pick-up in demand as consumers brought forward their purchases ahead of a sales tax hike from April 1. Among other precious metals, platinum rose nearly 1 percent on Monday as labour strikes continued in top producer South Africa.
Domestic sales go up
The recent fall in gold prices has improved the jewellery sales in India. According to retailers, gold jewellery sales have increased over 25 per cent during the past one week. The buyers in India see limited potential for further fall in gold prices from current levels, industry sources said.
According to Bachhraj Bamalwa, a Kolkata-based jewellery retailer and former chairman of All India Gems & Jewellery Trade Federation, jewellery sales will see an upsurge next week. Because of financial year-end, many bulk consumers abstained from fresh purchases. They will come back again with huge orders next week, assuming the bullion price would remain at the current level, he added.
The sudden fall in gold prices in India is attributed to two factors. One is obviously the appreciation in Indian currency. The Indian currency has gained almost 1.7% over the week. The rupee now is seen hovering around 60 against a dollar. The falling premiums too contributed significantly to the softening yellow metal prices. The gold premiums fell to US $20-$25 per ounce from the highs of US $75 per ounce last week.
Hence, footfall has increased with a fillip in their buying enthusiasm. “We have seen at least 20 per cent increase in average daily jewellery sales in the last couple of days probably because of fall in gold prices. Most of opportunistic visitors have purchased some grammage of jewellery,” said Rajesh Mehta, chairman and managing director of Rajesh Exports, who operate 82 retail stores across India.
Silver jewellery also witnessed an increase in demand among customers as the domestic silver prices averaged at Rs 43,000 per kilogram, falling 4.5 per cent over the week. Silver price fell to Rs 43,000 /kg here on March 29 following 2.40 per cent decline in global prices to $19.84 an oz.
According to latest report published by Commtrendz Research, Silver has almost reached the bottom. On a rebound, Silver will rebound sharply than gold or any other precious metal in the group. “Our daily average sales have increased by 20-25 per cent in the last couple of days, as consumers believe further price fall impossible. Being alternative to gold, silver has been a preferred choice for investors and retail consumers both for store value and festival buying,” said Rahul Mehta, managing director of Silver Emporium in Mumbai.
Traders said appreciating rupee against the American currency made imports of dollar denominated precious metal cheaper, which mainly kept pressure on bullion prices. They said sluggish demand on end of the marriage and festival season and investors shifting their funds from bullion to surging equity markets further influenced the sentiment.
On the domestic front, gold of 99.9 and 99.5 percent purity plunged by Rs 270 each to Rs 29,580 and Rs 29,380 per ten grams, respectively. It had lost Rs 500 in last two days. Sovereign followed suit and declined by Rs 100 to Rs 25,000 per piece of eight grams.
Silver ready dropped by Rs 250 to Rs 43,950 per kg and weekly-based delivery by Rs 220 to Rs 43,570 per kg. The white metal had lost Rs 3,000 in the previous seven sessions. Silver coins also lost Rs 1,000 to Rs 82,000 for buying and Rs 83,000 for selling of 100 pieces.
RBI Governor’s hint of easing gold imports indirectly aids the gold prices
Gold that halted its slide in the international market, aided by the weak US non-farm payroll numbers in first week of April. It registered a gain of 0.6 per cent same week and ended at $1,303.5 a troy ounce. The intra-week low was $1,277.8.
In India, the gold prices corrected as rupee gained sharply against the greenback. However, the correction was also reflected after RBI Governor Raghuram Rajan’s hint of a likely rollback of curbs on gold imports, the rupee gave up some gains and helped gold prices move higher.
While international gold prices were under pressure for most part of the week, the greenback zipped higher on a weak euro. On Thursday, the European Central Bank left its benchmark interest rate unchanged at a record low of 0.25 per cent.
In the physical market, demand for gold was weak. Reports say Chinese banks have been importing less gold. MCX gold futures dropped 7 per cent in the last three weeks on the rupee gaining strength against the greenback. But, the contract retracted last week on Raghuram Rajan’s hint of easing import curbs on gold. This may be a tactical statement to pull down the rupee.
Also, lifting of gold import curbs in India is not really good news for domestic investors. Only when supply is tight, do prices move up sharply. Also, with higher imports, the premium on domestic gold will decline, thus bringing down the domestic prices. This time, price is unlikely to run up too much in anticipation of a jump in demand.
Gold premiums in India fall by nearly 70 per cent
There has been a recovering demand for gold in India. There are number of factors responsible for the recovering demand one of them being the decision by the Reserve Bank of India (RBI) to grant gold import license to five private sector banks saw gold premiums tumbling by nearly 70 per cent in the first week of April.
In order to bring the Current Account Deficit (CAD) down, Indian Government had raised the import duty on gold to 10% during 2013. Further it made mandatory for all exporting houses and agencies to re-export one-fifth of the imported gold as finished products. Despite repeated demands from the industry body, government has not yet lowered the high gold duty structure.
However, as first sign of relaxation of tight gold curbs, RBI has allowed five more banks from the private sector to import gold, thereby making more gold available in the market. GJF forecasts the monthly gold shipments by the country to double to almost 50 tons in March 14 from 25 tons during Feb 14. Consequent to the RBI announcement, the premium on the yellow metal plunged from $85 per ounce to US $25-US $30 levels per ounce.
According to Bamalwa, the premiums are likely to fall back to normal levels of US $1-US $2 per troy ounce over the London prices in the event of further gold import relaxations.
Expect the gold imports to improve
High imports were reported in India last month as per the top analysts tracking gold. Gold traders and investors anticipate that gold import of the country would continue to move up after the slight price moderation and import relaxations steps brought about recently.
The reports of first week of April indicate that the inward shipment of precious metal to India has arrived in immense quantities through official channels such as via direct import through the export-focused units. The import of gold by the new five banks authorized by the RBI may have reflected in the current rise of gold shipment in India.
Further, the hint by Rajan to relax the gold import curbs also brings in a positive outlook in the bullion market. People are expecting the gold import duty to be released as before. In fact, Indian jewelers are also eying the auspicious season, the Akshaya Tritiya which falls on May 2, during which the sales is expected to surge in India. The sales and demand during the season will only accelerate if the price of the yellow metal remains low in the domestic market at the time. Gold price had dropped below Rs. 29,000 per 10 grams as compared to Rs. 31,000 in first half of March.
Both precious metals gold and silver ends higher on bullion market during Ram Navami
In brief four sessions of trading, both precious metals gold and silver ended higher on the bullion market from April 7-11 on fresh buying by stockists and retailers for the marriage season amid firm global trend. Markets remained closed on April 8 and April 10 on account of Ram Navami and polling for the seven Lok Sabha constituencies in the national capital respectively.
Traders said fresh buying by stockists and retailers for the ongoing marriage season mainly led to rise in the precious metals prices. Firm global trend where gold traded near a two-week high, as investors weighed the outlook for US stimulus and tension in Ukraine further influenced the sentiment, they said.
Gold prices dip again
Gold prices in India fell by losing Rs 200 to Rs 30,000 per 10 grams on April 15 on account of profit selling by stockists at prevailing higher levels amid weak global trend.
Traders said apart from profit-selling at prevailing higher levels, a weak global trend as investors assessed an improving US economy and the situation in Ukraine, mainly influenced gold and silver prices.
Gold prices again fell sharply in the foreign market—from $1,330/oz to $1,290/oz on April 15 after Goldman Sachs maintained a bearish outlook for the yellow metal. It said the metal would hit $1,050/oz by the year-end.
Goldman Sachs said unlike last year, this time, the price fall might be gradual. “While further escalation intentions could support gold prices, we expect a sequential acceleration in US and Chinese activity. Therefore, gold prices could decline, though it might take several weeks to lift uncertainty around this acceleration. Importantly, it will require a significant sustained slowdown in US growth for us to revisit our expectation for lower US gold prices through the next two years. Beyond the acceleration in US activity, signs of sequentially weaker Chinese gold imports could out pressure on prices in coming months.”
Gold prices to decline further through 2015
Gold prices are likely to fall further through 2015 following a second annual decline this year as US monetary policy normalises and investors switch to higher yielding assets, the GFMS team at Thomson Reuters said in a report recently.
Prices are expected to average $1,225 an ounce this year, down from an average $1,410 in 2013, the first year in which prices had declined in over a decade. They may fall as low as $1,100 in 2014 if gold is hit by further bouts of liquidation, GFMS’s head of research Rhona O’Connell said.
Small deficits are likely to be seen in the physical market in 2014 and 2015, O’Connell said, but a continued drift lower in ETF holdings, reflecting a lack of interest from professional investors, will put the market more or less in balance.
“What we think is going to happen is that the price will continue to decline broadly during 2015. It won’t be until you get to 2016 that you will find incredibly strong physical demand, if East Asia keeps growing the way it is, results in the kind of deficit that will make a difference to price.”