8% price rise in gold prices further crimps consumer demand

MUMBAI: The 8 per cent sudden rise in gold price from the year's low a month ago to Rs 26,895 per 10 gm on Wednesday has crimped consumer demand, say officials from two of India's leading jewellery companies.

This, they added, is reflected by gold in the local market trading at a discount of $1-1.5 an ounce (around 31.1 gms) to the metal rate quoted by banks.

"Demand has de clined by 15-20 per cent across the market with the price having risen from a low of less than Rs 25,000 last month, chiefly because of a rise in international gold and a weaker rupee," said Rajesh Mehta, chairman Rajesh Exports.

Gold fell 11 per cent from a high of Rs 27,893 on May 18 to a low of Rs 24,843 (plus VAT) on commodity exchange MCX on August 5 on fears of the US Federal Reserve likely to hike a benchmark interest rate from near zero in mid September. However, the turmoil in global financial markets after China devalued its currency later that month raised hopes of Fed deferring its decision to December. This resulted in the metal rising again and forcing householders, who buy to meet festive and wedding season demand, at this time of year, to tighten their purse strings.

"That traders are selling gold in the local market at a discount of $1-1.5 an ounce to the rate that they imported on consignment basis from banks shows that demand has taken a hit," said Mehul Choksi, CMD, Gitanjali group. However, both Choksi and Mehta expect demand to "improve" after Shradh which commences from September 28 through October 12 ahead of Diwali.

"It (the discount) will translate a householder saving of just Rs 3-4 per gram, which isn't much. I expect demand to improve from next month. If prices correct, like they did in early August, greater will be the demand; if they don't correct much we expect to see a marginal improvement only ," said Sudheesh Nambiath, precious metals consultant GFMS Thomson Reuters. Trade expects imports of gold in August, when price fell, to be around 90 tonnes, up 34 per cent from a year ago.