For many Indian families gold has become a part of their life, a tradition, perhaps so inseparable with their day-to-day life. This trend is visible particularly in the rich and high-middle class people. And with economy growing at a consistent pace, certainly there are more and more people enjoying these benefits. As a result, the Indian middle class’ purchasing power has gone up tremendously, and so is their spending ways. And one need not go for public opinion to get the pulse of the Indian middle class, particularly the women, as which way they like to put their money most – and undoubtedly the scales weigh heavily on gold and related kind of jewellery! So much high is the demand for gold jewellery in India and it only stands next to China as the leading importer of the precious yellow metal in the world.
But the recent trend seems to be adding to the worries of the middle class, the largest consumers of gold jewellery in the Indian market since the price of the gold is spiralling like never before. A few days back, the gold price has hit the roof-top by crossing the Rs 19,000 mark for ten grams one more time. This is not the first time that the gold price has crossed the Rs 19,000 mark this year. Earlier, during the Akshya Trithiya too, the gold rate has crossed the Rs 19,000 mark before climbing down a little bit and stabilizing. But, with the price of the yellow metal is climbing high once again, it just adding to the worries of the Indian middle class. For, there is a big festive season ahead including the Diwali, which sees the largest purchase of gold in the country every year. And there is yet another marriage season looming large. There seems to be no lessening for the demand of gold.
And, why there is so much demand for gold in India? This question may sound very discomforting for many sections of the people in India. For, they used to display gold as a symbol of their wealth etc. And there is a traditional side to this as well. Many Indian families are used to gift gold or gold ornaments, articles during functions, this trend is particularly evident during marriages. As a lot of families in India are still used to gift their bride complete gold jewellery set during her marriage. In fact, no bridal outfit would be complete without ornate jewellery, and when it comes to bridal jewellery the obvious choice is gold. In India, marriage and jewellery are inseparable. Gold has traditionally symbolised wealth and prosperity within Indian culture, holding special significance in celebrations such as weddings and births. Often presented as a gift, this precious metal features heavily in most of the Indian weddings. Ornaments such as the mangalasutra, bindi, ear rings, bangles, nose rings and rings are presently worn by brides almost all over the country. To gift their beloved gold jewellery set during her marriage, her parents start buying gold ornaments, though in small sums from her childhood days. And, now, even for small ceremonies like birthdays, anniversaries etc gold jewellery and articles are being given away as gift articles. And, if the trend continues to remain the same, the demand for gold is not going to come down in the near future but only to go up.
For record, Gold prices climbed to an all-time of Rs 19,405 per ten grams in the bullion market recently after frantic buying by the stockists to meet the rising demand during the festive season. The rise in the demand for precious metal mirrors the uncertainty prevailing in the global markets, said a market analyst. Gold rose to a two-month high in the global markets following a fall in the dollar. Gold prices climbed by Rs 215 to trade at a record high of Rs 19,405 per ten grams, surpassing the previous record level of Rs 19,220 set on June 8 this year.
Silver recorded a handsome gain of Rs 525 to trade at Rs 30,950 per kg on increased purchase by jewellery manufacturers. Marketmen said that a sharp rise in demand from jewellers and stockists to meet the ensuing festival season demand boosted the uptrend. The gold of 99.5 per cent purity shot up by Rs 215 to Rs 19,305 per ten grams. Sovereigns also rose by Rs 100 to all-time high of Rs 15,000 per piece of eight grams. Silver ready gained Rs 525 to trade at Rs 30,950 per kg and weekly-based delivery spurted by Rs 640 to Rs 30,920 per kg. Silver coins were also gained Rs 200 to Rs 34,900 for buying and Rs 35,000 for selling of 100 pieces.
Negative trend:
The Indian demand apart, the rise in gold prices in fact indicates negative trends that are currently prevailing in the international market. Though, the world markets showed some signs of recovery after the global recession, that hopes are fast evaporating now, if one goes by the current market trends. There are fears that the US market may once again crash in the coming months, is certainly no good news for India or for that matter any other major economies. Since American economy is the world’s largest economy, any downfall in the US economy may trigger crash in many economies across the world. It’s not just the US economy alone, which is undergoing bad phase, many economies across the world, particularly in the European countries, like UK are yet to recover from the global recession. But what is rising fears among the world economists is the rumours about impending double-dip recession in the US and UK. These rumours driving the investors to look for safe havens like gold, which is considered to be the safest investment base.
Traders and analysts believe the precious metal could hit fresh highs by the end of the year even if there might be a brief pause before the action kicks off again, they warn. Some are even touting a figure of Rs 20,000 to Rs 21, 000 per ten grams. The price of gold is soaring across the world. The precious metal is now trading at two-month highs of around $1,250 with the record highs of $1,264.9 last hit in June back in its sights. In August, bullion jumped by 5.6% - its biggest monthly advance since April. Analysts say investment demand has been the big driver behind the gold price, far outpacing demand for jewellery.
Some market analysts said the rise in gold demand is largely due to waning confidence in the world currencies. "The last six months has seen gold move up largely due to the fall in currency rates which includes the US dollar,” an analyst said. They say the slow recovery in the US and Europe besides rising sovereign debts may push the investors for gold purchases. On the other side, the demand for gold in emerging markets including China and India for both industrial uses and jewellery are also pushing forward the gold prices. September is traditionally one of the best times to buy gold ahead of jewellery buying season.
Industry reports say that India could import as much as 450 tonnes of gold this year after a good monsoon season which may see further increase for demand in gold during the festive season ahead. And rising inflation may be yet another factor for the spiraling of the gold price.
Yet another big reason for growth in gold purchases in the country is the rising of the Indian economy. In recent times, the Indian economy has registered a healthy growth. Buoyed by this healthy growth in several sectors including the manufacturing, trade, hotel, transport and communication sectors, the economy grew by 8.8 per cent in April-June this year, as against 6 per cent in the same quarter last year.
According to the Central Statistical Organisation (CSO), the Indian economy reported a healthy growth despite a partial withdrawal of economic stimulus packages. The government had rolled back excise duty to 10 per cent from 8 per cent in February this year. CSO data reflected that the growth was fastest since the last quarter of 2006-07 when the economy expanded by around 9.5 per cent.
The government expects GDP to grow by 8.5 per cent in entire 2010-11. Economists and industry bodies such as CII, Ficci, Assocham, said the growth in the quarter was on expected lines. They were optimistic of the entire year, citing possible growth rates ranging from 8.6 per cent to 9 per cent. Manufacturing sector expanded by 12.4 per cent; in the corresponding quarter last year the growth was a mere 3.8 per cent, due to global recession. “With the overall GDP growth showing steady rise, there might be more demand of gold in the coming months,” said a trader in General Bazaar, Secunderabad, one of the key markets for gold jewellery in the twin cities.
As one analyst put out, the demand for a good is inversely proportional to its price, that means higher price leads to lower demand and vice versa. But the ‘law of demand’ does not seem to be working as for as the gold demand in the country.
Since, higher prices are not keeping gold buyers away in India. This year it is estimated that India will buy between 600 to 625 metric tons of the precious metal, up from 480 to 485 tons last year. If the trend continues as expected, it will see India as the world's biggest gold consumer, surpassing even China.
There is yet another trend. The demand for gold has gone up in the country as many see it as a save investment. Market analysts predict, the country's gold investment demand may rise 25-30% in the second half of the year since Indian economy showing growth trend while leading world economies continue to decline. Indians traditionally buy gold jewellery, which is the most common gift during religious events, but buyers are becoming increasingly aware of the benefits of holding gold in other forms. Currently, jewellery accounts for 70-80% of the country's gold demand.
The country's gold demand, which fell to the lowest since 1997 last year because of a drought, would increase and help imports to rise to 600-625 tonne this year from 480 tonne in 2009, , a gold trader said, adding that the rise in investment demand would be faster. "There is increased awareness now. People have started realising the fact that coins and bars would protect the value of their investment unlike jewellery," he said. In recent years, Indians have increasingly bought gold bars and coins across bank counters and at jewellery shops, purely as an investment. A lot of the bars and coins are exchanged for jewellery at the time of weddings in the investors' families, though a lot of investors are also seen cashing them out when gold prices rise.
Banks have identified coins and bars as a new segment for growth and many have made a beeline to offer the product across their counters, often decorating their branches with religious symbols and flowers on auspicious days to lure customers.
The demand for gold will swell to a new high particularly during the festive season including Dasara, Diwali and Dhanteras -- India's single biggest gold buying day when people buy the metal to invoke prosperity. "Demand hasn't slowed despite higher prices and is expected to be good in the next three to four months," said Sinha. "The price level of 19,000 (rupees per 10 grams) is now understood by people and they are getting used to it," he added. The gold demand for may see increase further during the marriage season, which runs from November to December and from March through May. So, where the gold prices will be heading for? Maybe, Rs 20,000 to Rs 21,000 in the next few months, say some traders. Gold buyers, better watch out!