Gold demand from flood-hit Kerala will see a big dent in coming months. The fall in new demand and increase in supplies due to selling of old jewellery will help reduce gold imports further. This year, gold imports are estimated to fall 15 per cent to around 100-150 tonnes. Kerala's gold demand for jewellery is estimated at around 12-15 per cent of the total 600 tonnes of jewellery demand.
In flood-hit areas, the first priority of people is rehabilitation and gold could be the first asset they en-cash. There is also a possibility of default in loans taken against gold by several poor and middle-class people. The loan payment issues will be agnostic of gold loans and even other personal and business loans might also see payment issues. As far as gold loans are concerned, loan-providing companies and banks might sell the gold that was pledged if recovery looks to be impossible.
Ahammed MP, chairman, Malabar Gold & Diamonds, said, "It's a proven fact that the per capita expenditure on gold jewellery in Kerala is the highest in the country. But that kind of robust demand has been adversely impacted by the recent floods. The market sentiment in Kerala is extremely low at the moment as people are struggling to deal with the aftermath of the devastating flood. As a result of the prevailing situation in the state, the retail trade across industries during Onam will remain muted."
He added, "The demand for gold jewellery at the consumer-end will be sluggish during Onam. We have posted a modest six per cent growth in jewellery sales in Kerala in August as against the normal growth rate of 12-15 per cent."
According to industry sources dealing with the Kerala market and analysts tracking gold, with the state being a big market for gold and several people using the yellow metal as collateral for getting finances, there is a possibility of large-scale defaults in repayment and that pledged stock could come for auction, augmenting the supply of gold.
Industry officials from Kerala said on the condition of anonymity, "Some parts of Kerala, which have not been impacted much by floods, have started festive- and marriage-related jewellery buying. However, half of the traditional demand for festivals and marriages is unlikely to come for one or two quarters."
An analyst tracking gold said, "We also see a huge number of flood-affected people selling gold and jewellery to generate cash to meet rehabilitation fund requirements." He also said that the selling will further augment supplies but overall impact on imports will only be felt if these supplies are coming up in markets outside Kerala. He added that the impact also depends on the magnitude of such scrap sales.