Rajan Kumar, a suburban dweller in Mumbai in his late 50s, feels indebted to his jeweller. Last week, Kumar had gone to buy jewels worth Rs 1.5 lakh for his daughter’s wedding. But as the jeweller insisted on PAN card, he had to return without buying.
“We had almost selected the jewels for my daughter but we could not make the payment due to the PAN card issue. Fed up, we postponed the purchase and now I’m thanking my stars,” said Kumar.
But S. Rathod, another Mumbaikar, has not been so lucky. He had been buying gold coins for Rs 8,000 every quarter since last year.
“I am really shocked by the sharp fall in gold prices. Different people give different reasons for the price crash, but there is no clarity on when the prices will start looking up,” he said.
Rajesh Bhat, a middle-aged employee with a private firm, has been investing in gold since 2011. He has bought gold at levels starting from Rs 2,100 a gram to Rs 3,000.
And he is waiting for the prices to fall to the 2011-level to accumulate more gold.
The fall in gold prices since last weekend is witnessing mixed emotions from customers. Gold for jewellery (99.5 per cent purity) has dropped from Rs 30,490 on January 1 to Rs 25, 920 now on global cues.
Globally, gold has been dropping as investors shift to equities and fears that Cyprus might sell its gold holdings.
Some are worried over the price crash and others excited as they could now look at buying more gold.
During the weekend in Chennai, a large gold jewellery retailer reported sales of 27 kg of gold jewellery against the normal 6-7 kg. There has been the rush for gold in other cities, too, such as Hyderabad, Pune, New Delhi and Mumbai.
Rajeev Sheth, Chairman and Managing Director of Tara Jewellery, a jewellery retailer and exporter, says that fall in gold prices has got consumers flocking to the stores again.
Sheth says that investors have been making enquiries on whether this is the best time to buy the commodity. But consumers are the ones who are buying most, either in jewellery or bullion form.
“With Akshay Trithya just round the corner, we don’t have to do promotions as consumers are walking into stores as gold prices have dropped,” said Sheth
“The slump in gold prices has had a positive impact so far, with growth in volume. As we do not take position on our gold procurement, we have not faced any adverse impact on our financials. The volume growth protects our margins,” said Sandeep Kulhalli, Vice-President, Retail and Marketing, Tanishq.
Price slump
“The demand has slowed down a bit, but people buying jewellery for special occasions like wedding and gifting are considering the fall as an opportunity,” said Vinod Vadala, President, Mumbai Wholesale Gold Jewellers Association.
“Overall, I think demand from bullion investor will slowly wane and imports might slowdown this fiscal, but jewellery buyers will continue to be in the market,” Vadala said.
Gold imports dropped 12 per cent last year to 864 tonnes against 986 tonnes in 2011 due to lower demand, according to the World Gold Council data.
“The fluctuations in gold in the last few days have shocked the investors. This has been the biggest fall in the history of gold market. However, it would be too early to say that investors are losing faith in the yellow metal,” said Hardeep Yadav, Director of Delhi-based Checkmate Traders.
Kishore Narne, Head of Commodities, Motilal Oswal Securities, said the confidence in gold has been dented given the magnitude of the fall in price.
Prospects for any recovery in gold remain weak and given the lack of any major triggers. In the near term, gold is unlikely to reverse the downtrend anytime soon, he said.
NBFCs concerns
Non-banking finance companies that lend gold should be the ones that could be worried due to the fall.
But George Alexander Muthoot, Managing Director, Muthoot Finance, said that though gold price is an important factor, the business model should not be misunderstood as a financing bullion or shares where mark-to-market could affect the repayment behaviour.
“A 15 to 20 per cent price fluctuation in gold prices is already factored in our business model. It is not a new event which has come up. Since we are financing only household jewellery, the impact of such fluctuations is minimal,” he said.
More than the gold price it’s the collection mechanism which is important in this business.
Muthoot has institutionalised a system of regularly calling up the borrowers reminding him about the dues on the loan and every branch has a monthly interest collection target. These measures ensure regular interface with the customers and engenders repayment habit in the borrowers.
(Suresh Iyengar and Beena Parmar from Mumbai; G. Naga Sridhar from Hyderabad; Bindu D. Menon and K.R. Srivats from New Delhi; Shobha Kannan and Jayanta Mallick from Kolkata and A.J. Vinayak from Mangalore contributed to this report).