Is gold investment in India at the crossroads? A jeweller, would say ‘no'. The country may have been nudged to second position in gold consumption by none other than China, the regions' other emerging giant. But the appeal for the yellow metal has far from dimmed, jewellers say.
“There will always be ups and downs based on economic conditions and price of gold,” said Mr Ashok Minawala, former chairman, All-India Gem and Jewellery Trade Federation. At present, both these factors do not augur well for gold demand and this has, therefore, resulted in a slump in gold demand, he said.
At present, gold prices in the international markets are driven by the dollar's movements. Gold's recent rally that took its price to a record high of $1,920 a troy ounce in September 2011 was driven by dollar weakening against major currencies.
Gold is driven by the overall state of all markets. Last year, when equity markets worldwide weakened and the Euro zone debt crisis showed signs of getting resolved, money flowed into gold. But now the dollar is gaining acceptability and the euro as a currency is collapsing. With the dollar strengthening, gold is heading downwards, said Mr Madan Sabnavis, chief economist, Care Ratings.
Gold will still rule
While urban consumers may look at other asset classes for investment, the rural brethren will mostly opt for gold, says Mr Minawala.
“No science can move gold out as a good investment when a commodity has given a year-on-year returns of 30-35 per cent,” he said.
“Consumers will continue to go for gold as this physical asset has given very good returns,” said Mr S. Prahlathan, General Manager, Export-Import Bank of India.
Although jewellers are witnessing lower sales in volume terms, they are not complaining as value sales have been quite strong due to high prices. But even as consumers have been going in for exchange-traded funds, or gold in bullion form, the demand for jewellery will be an integral part of this business.
Rupee and gold
The rupee's slide against the dollar has kept gold prices in India hovering at near record levels despite a fall in the yellow metal's price in the international market. The rupee has shed 9 per cent against the dollar since January. The home unit's decline has further raised worries about rising bill of gold imports, which is the second highest in value terms. However, imports have been down in the recent months mainly because of sluggish demand and the 21-day nation-wide strike by jewellers.
Also, the government's move to impose curbs on imports of gold by non-resident Indians will help, Mr Minawala said.
“The All-India Gem and Jewellery Trade Federation had suggested lowering of NRI imports to the Finance Ministry. It has now been brought down to 1 kg from 10 kg. This will be very effective,” he said.
Further, a curb on exchange-traded funds will also help prices to come down due to lower trading on exchanges, he said.
No room for complacency
Jewellers are not overtly worried about China overtaking India as the world's leading consumer of gold, primarily because the preference for gold in these two countries is different. Yet, they have to be conscious of the changing preferences of consumers and be prepared for any eventualities.
While gold jewellery buying will continue, jewellers will have to not only introduce new products but also look at newer modes of business, said Mr Minawala.