With the Government hiking the duty on gold imports and the RBI restricting them through export obligations, there is a severe shortage of gold in the market.
From an average of 30 tonnes in June and July, gold imports dropped to less than 10 tonnes in August. So, how are jewellers managing to sustain operations?
Gold sales by exchange-traded funds (ETFs) and exchange of old jewellery are helping supplies, says Karan Vasa, Associate Vice-President at RiddiSiddhi Bullions, one of India’s largest importers and a leading dealer for gold funds.
A large number of investors in gold ETFs have sold their holdings in recent months. Numbers from the Association of Mutual Funds of India (AMFI) show that assets under management of gold ETFs stood at Rs 11,828 crore in August, after a net outflow of over Rs 1,000 crore in the last six months.
As all gold ETF units are backed by physical gold, these funds have been selling their hoard of gold. The aggregate holdings of gold funds have declined by about 4,000 kg or four tonnes. Goldman Sachs gold BeES, India’s largest gold ETF, which held about 11.96 tonnes in March, now holds only 9.94 tonnes.
However, gold sales by ETFs aren’t enough to meet domestic demand, Vasa adds, as the jewellery industry’s requirement is several times more. The 14 listed gold ETFs in the country hold a total 38 tonnes. This is what Indians purchase in a single month in the form of jewellery.
Sale of old jewellery by consumers is helping bridge the shortfall too, says Haresh Soni, Chairman of All-India Gems & Jewellery Foundation. “Generally, 20 per cent of the supply in the market is from recycled gold but today the proportion is much more. The rise in price of gold has seen more people trading in their old jewellery.”
In the last few months, several leading jewellers have announced offers such as Rs 50-100 per gram extra on exchange of gold ornaments. Some jewellers are even willing to swap old gold for cash, which they never did earlier.
Waning investments
While jewellery demand has been holding up, investment demand for gold has taken a hard knock this year. August saw the largest monthly outflow, of Rs 588 crore, from gold ETFs, in recent years. This is despite the ban on other investment avenues such as gold bar/coin sales by banks and the National Spot Exchange’s e-series.
Chirag Mehta, Fund Manager-Quantum Gold Fund, says, “We saw profit-booking in gold on account of prices rallying in a short span of time to record highs. This is mainly contributed by the sharp depreciation in the rupee value.”
Between April and August, gold prices have shot up from Rs 2,560 to Rs 3,300/gm, a 29 per cent return. Sellers seem keen to cash in on these returns while the going is good. Fears about a rollback in stimulus by the US Fed in recent months and worries that this would dent gold prices, also discouraged gold ETF investors, say fund houses.