Customers hold on to old gold as prices fall

Kolkata: The decline in gold prices and expectations of a better crop this year following a near normal monsoon have led to a 30% fall in sale of old gold since mid-September. While about one tonne of scrap gold arrived in the market every day in July and August, the volume has fallen to 600-700 kg, said James Jose, secretary of the Association of Gold Refineries and Mints. Indian households are clinging to their idle gold as the price of the yellow metal has fallen from about Rs. 32,000 per 10 gm on September 6 to about Rs. 30,000, Jose said.

Total gold recycled in India during April-June quarter was 23.8 tonnes, down from 24 tonnes a year ago. The price of gold was at the highest on September 6 when it touched Rs. 32,000 per 10 gm. But from middle of September it started declining as the Federal Open Market Committee (FOMC) kept the interest rate unchanged.

Simultaneously, the India rupee also strengthened against the US dollar, resulting in moderation of gold price in rupee terms. Consumers in rural India, who suffered two years of successive drought, were forced to offload household gold during July and August to buy raw materials for the kharif crop. But now that the crop prospect appears to be good, they are reluctant to sell gold, which is an important asset class in the countryside, said a scrap gold dealer in Maharashtra.

According to government estimates, 20,000 tonnes of gold is lying idle in Indian households. Bullion dealers in Zaveri Bazar said that since prices have fallen investors are buying gold in anticipation that prices will shoot up after the US presidential election and an expected rate hike by US Fed in December.