MUMBAI (CommodityOnline.com) -- India's overheated gold market was on Thursday headed for a fall as demand for the yellow metal was negligible among dealers and traders in the main trading hubs like Mumbai. The spot gold prices in Mumbai market hovered around Rs 11,000 per 10 grams.
Traders said the gold market in India - the largest global consumer of gold - could go up only if the global prices of the yellow metal come down at least $8 an ounce.
In global markets, gold prices have been up on short covering but 3% down from its all-time high of $914 an ounce. The yellow metal had rallied on hopes of a hefty rate cut at the end of January in the U.S. that could dim the dollar and heighten the appeal of gold.
Traders said people expected levels closer to the psychological Rs 11,000 per 10 grams that they could buy. "People are asking us when the price will come down, so that they can buy gold," said a gold merchant in the southern Indian city of Kochi.
Many Hindu weddings are likely to be held right until May, which could keep the gold market busy in the days ahead.
The price of .995 gold in the spot market in rupees per 10 grams was going around Rs 1 11,383 to Rs 11,314. Gold futures in the Multi Commodity Exchange of India stood at Rs 11,181 per 10 grams.
India is the largest consumer of gold in the world. But Suresh Hundia, president of the Bombay Bullion Association said that gold demand is declining thanks to the "overheated gold prices." "The fact is that these days people are booking profits and selling their gold back to jewellers," he said.
He said as the gold price has soared to record highs, imports have come to a near standstill, tumbling 70%-80% in the last month. Gold imports in the last quarter of 2007 could have been 20% lower than in the same period in 2006.
India consumes anywhere between 800 to 900 tonnes of gold worth $6 billion to $7 billion annually. But domestic production of gold is only about 2 tonnes per annum. The net gold de-hedging in the second half of 2007 was between 1.5 million and 2.5 million oz globally. Who usurps all this gold in India? Mainly the gems and jewellery industry, which is competitive in the world market due to its low cost of production and availability of skilled labour. In addition, the industry has a worldwide distribution network, which has been established over a period of time.
India has set up more than 3,000 offices worldwide for promotion and marketing of Indian diamonds. The Indian diamond industry has acquired leadership position in cutting and polishing of rough diamonds. India has the world's largest cutting and polishing industry, employing around 800,000 people (constituting 94% of global workers) with more than 500 hi-tech laser machines.
The industry is well supported by government policies and the banking sector - around 50 banks provide nearly $3 billion in credit to the Indian diamond industry. India is expected to have its diamond bourse functioning at Mumbai in 2006. India is therefore a significant player in the world gems and jewellery market both as a source of processed diamonds as well as a large consuming market. The Indian gems and jewellery sector is largely unorganised at present. There are more than 15,000 players across the country in the gold processing industry, of which only about 80 players have a turnover of over $4.15 million. There are about 450,000 goldsmiths spread throughout the country.
India was one of the first countries to start making fine jewellery from minerals and metals and even today, most of the jewellery made in India is hand made. The industry is dominated by family jewellers, who constitute nearly 96% of the market. Organised players such as Tata with its Tanishq brand, have, however, been growing steadily carving a 4% market share. As India's jewellery market matures, it is expected to get more organised and the share of family jewellers is expected to decline.
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