Gold prices dropping to a six-month-low has raised hopes of robust demand for the jewellery sector in the country with the festival season round the corner.
The industry is expecting gold prices to remain low in the coming months with the US Federal Reserve hiking interest rates by 75 basis points to 3-3.25% on Wednesday.
Akshaya Tritiya in May saw sales jump by 20% despite gold prices being higher than the current level. The price of 22 carat gold used for making jewellery fell to a low of Rs 45,800 per 10 grams on Wednesday. It moved up slightly to Rs 46,000 on Thursday.
At the time of Akshaya Tritiya, when it is considered to auspicious to buy gold, prices had hovered around Rs 48,000 per 10 grams.
“Navrathri festival is due to start from Monday. It is good that gold has become cheaper. A rate under Rs 50,000 will definitely boost sales. The rate may not go up much higher, may be by Rs 400 to 500 in the coming days when the demand increases,” said Ashish Pethe, chairman of the All India Gem and Jewellery Domestic Council.
Wedding season boost
The price had touched Rs 48,400 per 10 grams in April, the highest so far in 2022. If the rise in the dollar continues, it could test Rs 44,900 reached in January, traders reckon.
With the wedding season about to begin from next month, the advance booking of gold jewellery has increased to hedge against a possible rise in prices.
“People are watching rates every day and they book the jewellery for delivery later by paying around 10% as advance,’’ said B Govindan, chairman of Bhima Jewellers.
According to him, the walk-ins at jewellery shops have gone up by around 40% this year, but the quantity purchased is lower than the pre-COVID levels, probably because of a shortage of funds. The exchange of old ornaments for buying new ones has also increased, he added.
Customised gold jewellery is also in vogue. “Young women are seeking novelty in jewellery these days. They want to alter the design in traditional ornaments so as to make them unique. Many jewelleries are doing customised designs to cater to this need,’’ said Ramesh S Pai, partner of Geeripai Gold and Diamonds.
Unlike the times before the pandemic, people are not buying ornaments in bulk for marriages. “Many youngsters are not in favour of the idea of buying more ornaments and keeping them in bank lockers after the wedding. Instead, they prefer to buy what they need only,’’ Pai said.
Commodity market experts say the chances of intense volatility in gold prices are less in the coming months. “The market has already discounted the 75 basis points hike in interest rates by Federal Reserve. The volatility would have been higher if the increase was either 50 or 100 points,’’ said V Hareesh, head of research, commodities, Geojit Financial Services.
Weak rupee, high demand
Gold’s international price has support at $1,650 per ounce, below which the rates have not gone since April 2020, Hareesh said. The gold rate hovered around $1,661 per ounce on Thursday.
In the Indian market, he observed that a weak rupee and high demand will check gold prices from falling further. The dollar index reached a new high of 111.6 on Thursday after the interest rate hike. The rupee slipped further against dollar to Rs 80.72 from Rs 80.5 on Wednesday.
Trading in gold exchange-traded funds has remained flat so far.“This is because people find better returns in debt and equity markets,’’ said Akshay Agarwal, MD of Acumen Capital Market. But he felt the scenario could change if Federal Reserve goes for a further hike in interest rates. “Then investment could shift from the equity market. Gold ETFs may be more in demand,” he said.