Gold maintains its lustre in India

Customers buy gold jewellery during Dhanteras, which marks the beginning of the five-day Hindu Diwali festival and is traditionally a popular day for Indians to buy gold. Subhash Sharma for The NationShow more

Darab Bajina, a 62-year-old accountant, was among a horde of customers who filled up a jewellery store in Mumbai last Tuesday afternoon.

He was trying to edge his way through the crowd to get to the counter so he could buy a gold necklace for his wife for about 30,000 rupees (Dh1,800).

“I’m buying because of Dhanteras,” he said, as another eager buyer pushed in front of him. “Gold’s a very good investment and the prices are low at the moment.”

Dhanteras marks the beginning of the five-day Hindu Diwali festival and is traditionally a popular day for Indians to buy gold.

The current festival and wedding season, along with lower prices, have been tempting buyers back into the market following slow demand for the precious metal in earlier months this year.

“I hope the trend continues over the next couple of months,” says Dilip Tulsiani, the manager of Dwarkadas Chandumal Jewellers in Zaveri Bazaar, a vast jewellery market in Mumbai. He explains that his sales are up about 50 per cent compared to two to three months ago, when business was slow. “Indians have always believed that gold is the safest investment. In Indian custom, one can’t get married without gold.”

Other retailers have had similar experience.

The year got off to a slow start with business down between April and June this year on the same period last year, according to Sandeep Kulhalli, the vice president for marketing and retail of the jewellery division of Tanishq, one of India’s biggest retail jewellery brands, with more than 150 stores across the country.

“Subsequent to that we have seen very positive numbers thanks to the gold rate softening,” Mr Kulhalli says. “I can say for the sure there has been a good growth so far in volume terms, in spite of a slow start to the first quarter of our financial year.”

Gold last week was at about 27,900 rupees per 10 grams in Mumbai, down about 10 per cent on prices last year.

“I think from customer sentiment, there is still an area for improvement,” Mr Kulhalli adds.

Tanisqh this time last year had stopped selling gold bullion coins to help the government reduce imports, but the stores are now selling gold coins again, so that is also boosting business, he says.

Trying to control the sale of gold coins was among a number of steps taken last year to curb gold imports into the country in an effort to help bring the current account deficit under control. The government also hiked import duties on gold to 10 per cent and made it compulsory for those importing gold to export 20 per cent. In May, the government slightly eased restrictions on gold imports.

India last year was overtaken by China as the world’s largest consumer of gold, as the subcontinent’s measures had an impact on gold-buying trends.

Consumer demand for gold in India in the second quarter of this year plummeted by 39 per cent compared to same quarter last year to 204.1 tonnes, according to data from the World Gold Council.

But the appetite for the yellow metal seems to be returning.

“The gold demand this Diwali mirrors the general optimism that has set in the economy, reinforcing the traditional faith in gold for the average household saver and the increased economic relevance of this asset class due to various uncertainties on the horizon,” says Somasundaram PR, the managing director in India for the World Gold Council. “Policy restrictions have had little impact on demand for gold, though sources of supply have increasingly shifted to unauthorised channels.”

Gold imports through official channels surged by 450 per cent last month to US$3.75 billion compared to the same period a year earlier, according to the commerce ministry.

“The social culture of the country is such that Indians feel security with gold,” says Poonam Soni, a luxury jewellery designer who lists Bollywood stars among her clients. “In fact, when women get married, gold is given as a security for marriages for middle class and below the middle class families.”

For many Indians, gold jewellery is an investment, she explains.

“It’s a commodity which is easily cashable, whereas diamonds are not, and neither is designer jewellery, and silver absolutely not. But gold coins, gold jewellery, which is less labour-intensive, is still very cashable. So particularly with people who are struggling to make ends meet, who do not have a lot of cash at their disposal, they are following gold. That is why you find the sprouting up of huge commercial brands in India’s jewellery market, like Kalyan, Malabar, while earlier there was just Tanishq and the rest were all family jewellers. But now jewellers are going to every city and opening multi-stores all over the cities – because there is a demand and they want to supply.”

Amarendra Vummidi, the managing director of ZaAmor, an online jewellery portal in India, says the website has been enjoying brisk business because of lower rates.

“The demand for metal during the festival season has definitely picked up over the last few weeks,” says Mr Vummidi. “There is definitely a growing trend for buying gold online. We are carefully watching the steps taken by the government in regulating the gold flow to maintain current account deficit. However, gold continues to remain a key element in the portfolio of a family’s investment plans.”

Not everyone was optimistic about festive sales, however.

Raju Solanki runs his 60-year-old family business jewellery store in Zaveri Bazaar. He says that sales this festive season are down about 40 per cent compared to their peak, about five years ago.

“They are thinking that gold prices will fall further, so people are holding back,” Mr Solanki says. “Heavy buying is not there.”

He explains that many customers come in and buy small amounts of gold, such as 1 gram or 10 gram denominations, for the sake of tradition.

“It used to be huge. The past three or four years have not been good, he adds. Some other jewellers in the market reported similarly disappointing trends.

But the majority agree that so embedded is gold in the India’s tradition and culture that it unlikely to lose its shine any time soon.

Analysts argue that gold therefore needs to be brought into the formal financial system in the country.

“It is time for a long-term approach to gold in India,” says Mr Somasundaram. “As a nation we need to focus on measures that will unlock the potentially transformative value of the gold stored in millions of private households in order to fund the nation’s growth.”

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