PremiumGold prices in most parts of India have fallen more than ₹1,000 per 10gm of 24-carat in the past two days, ever since the US Federal Reserve on Wednesday signalled an interest rate hike by 2023
Gold prices in most parts of India have fallen more than ₹1,000 per 10gm of 24-carat in the past two days, ever since the US Federal Reserve on Wednesday signalled an interest rate hike by 2023.
This is the biggest decline for gold in India in 2021, and prices continued to drop on Friday, even as the bullion made a strong rebound in the international market. Weak consumer sentiment following the second wave of covid and restrictions in most states crimped physical demand for the precious metal this year.
India is the world’s second-largest bullion consumer after China. Within India, Kerala is the largest retail market, according to the World Gold Council.
In Delhi, the price fell by ₹700 and ₹400 on Thursday and Friday, respectively, and is currently around ₹50,500. In Kerala, it fell by ₹540 and ₹660 on Thursday and Friday, respectively, to close at ₹48,300. In Chennai, the price dropped to ₹48,600 after two declines of ₹650 each. Gold rates in India vary across cities due to state taxes, hauling cost and margins.
In Mumbai, however, the prices dropped by only ₹60 to close at ₹48,350.
For investors in the country, this, along with the five-day fall in the run-up to the US Fed meeting, has blown a ₹2,000-hole (per 10gm) in their kitty.
As with almost every part of the international market, global gold prices, too, are impacted by the decision on US interest rates. Any rise in interest rates in the US tends to lead investors towards bonds from gold. The US dollar has also strengthened.
“If the US Fed rates go up, it will weaken the rupee. The price of gold is likely to remain somewhat range-bound between ₹45,000 and ₹55,000 per 10gm," said Raghu G, general manager – bullion, Manappuram Group.
Internationally, gold suffered its biggest single-day percentage drop this year on Thursday as the dollar rose after the US Fed signalled it may raise interest rates sooner than expected.
Gold futures declined 4.5% in the biggest drop in more than 10 months. That took gold down to $1,777.80 a troy ounce on Thursday. However, it gained around $16 later in the day to more than $1,792. A troy ounce is equivalent to 31.1gm.
Despite a strong rebound in international prices, insufficient demand has taken the sheen out of the yellow metal in India, at least for now.
While investors are cautious in a volatile market, gold retailers are not unduly perturbed.
“Any gold price fall acts as a trigger for more purchases by customers. There are two types of customers when the price falls. The first kind rushes to the market to buy more gold. The other waits for another fall before firming up the purchase decision," said T.K. Ramesh, promoter and executive director, Kalyan Jewellers Ltd.
As lockdowns in states such as Karnataka, Tamil Nadu and Kerala are still in force, either partially or fully, the gold retail market has yet to see a revival. Many jewellery showrooms are still to reopen even after the lifting of lockdowns in some markets, according to industry officials.
Industry officials are, however, upbeat about gold as a fundamentally strong asset class
“Price volatility does not impact our P&L (profit and loss) because we have hedged our gold adequately," said Ramesh.
“Indian customers look for long-term gains and they know gold has always given a return. Soon after the first lockdown, we saw a lot of young customers make a gold purchase at our showrooms as they found gold as a liquid asset. We also witnessed high growth in first-time customers," said Ramesh.
Also, in the gold retailing market, there has been a visible shift from the unorganized sector to the organized.
“People want to avoid crowded markets and prefer standalone showrooms. Also, strict BIS hallmarking rules have forced many to move away from unorganized gold sellers," said Ramesh.
The government has made it mandatory for jewellers to sell only hallmarked jewellery from 16 June.
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