Why India's love affair with gold is set to deepen

yugasini By yugasini, 27th Oct 2014 | Follow this author | RSS Feed
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For the last two days Neeta Malhotra has been busy shuttling from one jewellery store to another in Mumbai. Her elder daughter is getting married next year but she's trying to buy as much jewellery as possible for the wedding now.

Gold is India's second biggest import, after crude oil

'I was waiting for this period to start buying gold jewellery for my daughter's wedding' says Mrs Malhotra, as she checks out a necklace in the store.

But why is she in such a hurry to buy so much jewellery right now? After all, her daughter's wedding is still a year away.

"This is the best time to purchase gold and the prices are also low right now. I am not sure whether I will get the same rate next year," she says.

Neeta is one among millions of Indians who have been thronging stores over the last two weeks to purchase jewellery, as the festive and wedding season kicks in.

Domestic prices are 7.4% lower compared to the same period last year, thanks largely to a slump in international demand - and this is expected to give a big boost to sales this year.

Diwali, festival of lights, is celebrated by nearly 800m Hindus in India

The festive season runs from October to December every year, making these months the most important for buying gold in India.

Diwali, the festival of lights, takes place on 23 October this year and most weddings will also take place during this period. Gold ornaments are often given as wedding presents, irrespective of the religion.

Analysts say that nearly 20% of annual sales are generated during this period and the World Gold Council predicts that India will import 850 to 950 tonnes of gold in 2014.

Rajesh Popley, director of the Popley Group, which has jewellery stores in Mumbai and Dubai, expects sales to go up.

We are expecting demand to rise by 20%-30% this Diwali compared to last year, he says.

Restrictions
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Given the gold craze in India, it is no surprise that it is the second biggest import item after crude oil. The country's total gold and silver imports stood at $55.7bn (£34.7bn) in the 2012-13 financial year.

But this has had an adverse impact on the current account deficit (CAD) which is the gap between export revenues and imports payments.

In 2013, the government raised import tariffs to 10% to bring down the deficit. It also made it mandatory for trading agencies to then export 20% of the goods which had been imported.

These curbs had a major impact on supply, with the value of gold and silver imports dropping 40% to $33.4 billion in 2013 -14.

However, as a result, the deficit narrowed to $32.4bn from $87.8bn during the same period, according to the Reserve Bank of India.

Demand for gold is expected to increase substantially this year

"The CAD was a big concern for the economy but the scenario has now changed dramatically," says Siddhartha Sanyal, chief economist at Barclays India.

But these restrictions have also affected the business of gold jewellery retailers in a big way.

"It has been a struggle for the industry to source gold and it has been a tough period for retailers," says Mr Popley.

Smuggled gold
To counter this issue, he has been importing jewellery directly rather than making items in India. Many retailers have adopted this strategy - at the cost of lower profits.

India's central bank eased some rules in May this year - like allowing more agencies to import gold to sell. This has given some breathing space to the industry, with supply increasing in the market.

But these curbs have also given rise to gold smuggling in the country.

According to media reports, travellers have been trying various methods to get gold into the country via unofficial routes. Some passengers have tried to conceal bars and coins in their luggage, or in their clothes.

Many have also arrived wearing it and later claimed that was their own personal jewellery.

Import restrictions have distorted the market, says the World Gold Council

Some smugglers have even tried to hide the bullion in airplane lavatories to pick it up later. Many have been bringing gold into the country by sea.

According to the World Gold Council, by the end of this year, 200 tonnes of gold will have been smuggled into the country.

'Emotional, sentimental and religious'
Marcus Grubb, from the World Gold Council feels that restrictions on imports have created two gold markets in India - an official one and a smuggled one.

"The curbs have distorted the market. There isn't sufficient supply to meet demand," he says.

This has also had a negative effect on jewellery retailers, who have been losing out to players that have been buying their gold from the smugglers.

Analysts expect gold purchases to pick up. In the second half of 2013, demand for the precious metal fell due to high gold prices and import restrictions. But that trend has started to change over the last three months.

In September, imports surged to $3.7bn compared to just $682.5m last year.

Analysts say consumer confidence in India is picking up

"Demand for physical gold in India never really dies. There maybe a dip for a while but it always bounces back.

"It's an emotional, sentimental and religious purchase," says Rajesh Popley.

After going through a lull, the Indian economy has also started to perform better, with foreign investment coming into the country.

This has also added to consumer confidence, which is why people are purchasing more than they were eight to 10 months ago.

Increased household wealth, rapid urbanisation and higher economic growth are going to drive gold demand in India in the next three to five years, says Marcus Grubb.

And going by the current trends that prediction does not come as a surprise. The Indian love affair with the precious metal is only expected to get deeper.

Source:bbc.com

Tags

950 Tonnes, Gold, Hindu, Imports, Jewellery, Millions, October-December, Reserve Bank Of India, Wedding

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author avatar yugasini
ii am the person ,i help friends according to their need ,if i have that stuff with me,i am sincere,straightforward,trustworthy person

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Comments

author avatar Ptrikha
27th Oct 2014 (#)

Yes the demand of Gold in India has again started going up, but it is increasing only by a few notches due to still high inflation and attractive stock market.

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author avatar yugasini
27th Oct 2014 (#)

you are right, thanks for comment. Have a nice day.

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author avatar AjaySinghChauhan
27th Oct 2014 (#)

www.facebook.com/benkhoya :D

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author avatar yugasini
27th Oct 2014 (#)

Thanks for comment, have a nice day.

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author avatar AjaySinghChauhan
27th Oct 2014 (#)

good post and thanks for sharing your views with us. Nice and informative...

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author avatar yugasini
27th Oct 2014 (#)

Thanks for the comment, have a nice day.

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author avatar Lady Aiyanna
27th Oct 2014 (#)

In India the LIC groups have something wherein you can save money for your offspring and get the money when they reach the marriageable age to buy their wedding essentials. Things like Indira Vikas Patra and many more are products of such schemes.
I had 1kg Gold and 1kg Silver for my wedding which formed part of the dowry. Never gave it to the in-laws, showed it to them and kept it in the bank and walked with it when their son misbehaved with infidelity. We are still married but he is of insanity now and chose to remain married.

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author avatar Saminac
27th Oct 2014 (#)

in my society dowry of Gold is common. I am sorry to say that most of beautiful girls and young man are lacking marriages because they cannot afford it at all.

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author avatar yugasini
27th Oct 2014 (#)

Thanks for the comment, have a nice day.

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author avatar yugasini
27th Oct 2014 (#)

thanks for sharing your thoughts with us, have a nice day.

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author avatar Retired
29th Oct 2014 (#)

This is interesting about rising demand for gold in India. Wow, I wish I were there to pick up some gold findings for making my jewelry.

Demand for gold bullion usually goes up when the economy is down, from people seeking the safety and value of gold compared to printed currency.

Well, happy gold jewelry shopping. Wish I were there!

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author avatar yugasini
29th Oct 2014 (#)

Gold is having ever green value so most of the people keep their saving on gold. Thanks for the comment, have a nice day.

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author avatar Fern Mc Costigan
29th Oct 2014 (#)

Awesome post and interesting piece as well!

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author avatar yugasini
29th Oct 2014 (#)

Thanks for the comment, have a nice day.

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