A record rally in gold prices has dampened jewellers' hopes about a robust sales in the beginning of the year.
Encouraged by the uptick in sales during Diwali and Dhanteras in October, jewellers were expecting a higher demand, with the start of the wedding season – between October and December.
The rising rates of the yellow metal, together with the threats of economic slowdown, have dampened sales.
International gold prices are hovering around $1,921 per ounce -- up from around $1,615 in November 2022.
In India, gold futures in the Multi Commodity Exchange (MCX) touched a new high of Rs 56,245 per 10 gm last week. On Monday, it was trading further high-- in the Rs 56,300-56,400 range.
The price of 22 carat gold, used by jewellers, was Rs 5,220 per gram or Rs 41,760 per sovereign (8 gms) on Monday.
Also Read | Gold prices hit record high: What you should do now
It is edging closer to the previous high of Rs 5,250 per gram or Rs 42,000 per sovereign reached in August 2020. The per-gram rates are around Rs 520 higher from the time of Dhanteras last year.
“There is a 40-50 percent reduction in gold purchases for weddings. The general sluggishness in the economy has also affected gold buying,’’ said B Govindan, chairman of Bhima Jewellers.
Number of weddings up, but gold buying lukewarm
The number of weddings has gone up as new ones, along with those postponed due to the pandemic, are being held now. “As a result, we are seeing more walk-ins in the outlets. But it is not getting translated into sales and purchases have not reached the pre- pandemic level, though it is better than in 2020 or 2021,’’ Govindan, who is also the southern zone chairman of the All India Gem and Jewellery Domestic Council (GJC), said.
According to him, weak demand has hit smaller dealers more as they have lower number of outlets. Big players have many outlets spread over several states, and this helps to keep sales up.
"The retail business in small shops has not picked up and the price rally may delay it further. The rich are still buying gold and diamonds but the middle- and lower-income people tend to postpone gold purchases in the present circumstances,’’ said V C Shibu, partner, G P Gold, in Kozhikode.
‘Expecting more growth’
Despite an increase in gold rates, large jewellery chains like Malabar Gold and Diamonds, which has showrooms spread across 10 countries, are expecting more growth than in 2022.
“Last year, we grew by over 20 percent. This year, we are expecting more growth. High import duty, which works out to 15 percent, is an impediment to the growth of the industry as it encourages smuggling and illegal sales of gold,’’ said company chairman M P Ahammed.
The unorganised trade, which uses smuggled gold to provide jewellery at discounted rates, often foregoing the 3 percent GST, is eating into the business of the organised players, he said.
The only solution is better monitoring and curbing the import duty of gold, he said pointing to the high incidence of gold smuggling into India from Gulf nations and neighbouring countries, such as Bangladesh, Sri Lanka and Nepal in recent times.
Analysts feel the gold prices may remain at a high level in the short term, especially in India.
“The indications of economic recession by the IMF and expected slowdown in rate hikes by the US Federal Reserve, along with the weakening of the dollar, has triggered the current rally in gold prices. The dollar index has fallen to 102 from 114 about two months ago,’’ said V Hareesh, head of research, commodities, Geojit Financial Services’
He reckons that international gold rates may cross $2,000 per ounce but may fall short of the present peak of $2,072, unless there are some serious geo-political events.
“In India, gold futures could cross Rs 60,000 per 10 gm, if the rupee breaks the 83 level against dollar,’’ he said.