The biggest slump in gold prices in three decades is poised to revive jewelry demand among Indian housewives and brides before the wedding and festival seasons, according to Gitanjali Gems Ltd (GITG). and Rajesh Exports Ltd. (RJEX)
Bullion tumbled 9.1 percent yesterday, the biggest loss since 1983, and that may make the precious metal more affordable to Indians, said Mehul Choksi, chief executive officer of Gitanjali, the nation’s biggest retailer of jewelry and diamonds by sales. The plunge has already revived interest among retail buyers, said Rajesh Mehta, chairman of Rajesh Exports Ltd.
Gold, which entered a bear market last week, has lost 17 percent this year after rallying for 12 straight years as optimism that a U.S. recovery will curb the need for stimulus cut demand for protection of wealth. Falling prices may discourage speculators and help India, the world’s biggest consumer, curb a record current-account deficit, according to Ambit Capital Pvt.
“The season is very hot for buying” with weddings and other auspicious dates coming up, Choksi said. “The decline will be positive for jewelry as there will be a pick-up in demand because affordability will increase. Volumes will increase.”
Gold is bought during festivals and marriages as part of the bridal trousseau or gifted in the form of jewelry by relatives. The festival season in India runs from August to October followed by the wedding season from November to December and from late March through early May.
‘Rushed to Buy’
The Akshaya Tritiya festival on May 13 is considered by India’s more than 900 million Hindus as the traditional day to buy precious metals.
“We rushed to buy as soon as we saw prices fall so much and decided to buy jewelry early for our daughter’s wedding in January,” said Blossom D’souza, while browsing through a selection of bangles in a jewelry store in Mumbai’s Chira Bazaar area. “Now we can buy more gold within our budget.”
Bullion may slump to as low as 24,000 rupees ($440) per 10 grams in the “short-to-medium term” after tumbling today to the lowest since September 2011, according to Religare Commodities Ltd. Futures on the Multi Commodity Exchange of India Ltd. (MCX) have fallen 16 percent this year after rallying for eight straight years.
“We are witnessing history in terms of the decline in gold prices,” Rajesh Exports’ Mehta said. “There is good interest from retail buyers.”
India has tripled import taxes from as low as 2 percent in January last year after the current-account shortfall, the broadest measure of trade, widened and the rupee slumped to a record. Overseas purchases dropped 11 percent last year to 860 tons from a record 969 tons in 2011, the World Gold Council estimates. Demand (WGCDINDI) for jewelry and investment fell to 864.2 tons in 2012, the second straight year of decline, it said.
The fall in gold “should alleviate to a significant extent one of India’s key problems now, which is the current-account deficit,” Gaurav Mehta, an analyst at Ambit, said in a report yesterday. A fall in the gap may improve prospects for the rupee and “a drop in imported inflation which can pave the way for lower interest rates,” he said.
The deficit, the broadest measure of trade, swelled to $32.6 billion in the quarter ended Dec. 31, or 6.7 percent of gross domestic product, stoked by gold and oil imports and subdued exports. Wholesale price-based inflation in India slowed to a 40-month low of 5.96 percent last month, official data showed yesterday, compared with a 6.27 percent median estimate predicted in a Bloomberg survey.
Gold for immediate delivery traded 3.2 percent higher at $1,390.75 an ounce at 5:42 p.m. in Mumbai, rebounding from $1,321.95, the lowest since January 2011. Prices tumbled 5 percent on April 12, taking losses to more than 20 percent since the record close in September 2011, and meeting the common definition of a bear market.
“The fall in gold prices is going to positively impact the companies, which are into retail,” Paras Bothra, head of equities research at Ashika Stock Broking Ltd., said by phone from Kolkata. “Higher gold prices were acting as a deterrent to all those people who were willing to buy gold. There is a lot of pent up demand.”
Gitanjali Gem’s sales rose 23.5 percent to 43.5 billion rupees in the three months ended Dec. 31, the slowest pace in at least 10 quarters, according to data compiled by Bloomberg. Prices of the metal surged to a record on Nov. 26, deterring some buyers.
Shares of jewelry makers rallied in Mumbai today, while gold loan companies slumped for a second day. Titan Industries Ltd. (TTAN) advanced 2.1 percent to 244.40 rupees, Gitanjali (GITG) rose 0.9 percent to 596.25 rupees, Muthoot Finance Ltd. (MUTH) plunged 10.6 percent to 118.25 rupees and Manappuram Finance Ltd. (MGFL) declined 9.8 percent to 15.70 rupees.
The sell-off in bullion may prompt buyers to bet on further declines and defer purchases, according to the All India Gems & Jewellery Trade Federation. “People are expecting prices to drop more as the sentiment in the market is weak and selling pressure remains,” Chairman Haresh Soni said. The federation represents about 300,000 jewelers nationwide.
Demand for gold will remain strong because of weddings and festivals, Somasundaram P.R., managing director for India at the gold council, said in an e-mailed statement yesterday.
“I was thinking of investing in gold but kept delaying it,” said Janet Arokianadan, who was looking at necklaces at S.K. Parmar Jewelers in Mumbai. “It’s a perfect time for me to buy gold.”
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