The plunge in gold to an almost three-year low has failed to lure shoppers in India, the world’s largest consumer, as state curbs and a decline in the rupee to a record bolster the costs of imported metal.
Inbound shipments may tumble 52% to 150 metric tons in the three months starting July 1 from a quarter earlier as buyers keep away from stores, Bachhraj Bamalwa, a director at the All India Gems & Jewellery Trade Federation, said in an interview yesterday. Prices in India have fallen 15% this quarter, less than the 25% drop in London after the rupee lost 8.6% against the dollar to an all-time low.
“I will wait for prices to fall further and stabilize before buying anything,” Niranjan Sahoo, 41, an engineer by profession, said by phone from Angul in the eastern state of Odisha. “Prices will fall further between July and August and if they fall to 20,000 rupees per 10 grams I plan to buy 50 grams and keep it for my daughter’s marriage.”
While a 14% slump in prices in two days in April led to a buying frenzy from China to India and the U.S., shoppers are now waiting for bullion to extend the decline from near the lowest level since August 2010. That may accelerate the biggest quarterly slide since at least 1920 after investors cut bullion holdings to a three-year low.
“The most obvious disappointment is India, as buyers there struggle to cope with both a weaker currency and recent government measures,” UBS AG analysts Edel Tully and Joni Teves wrote in report yesterday. “In addition to muted appetite on the back of the latest developments, the lack of clarity on what the new restrictions on the Indian gold market mean exactly for all those involved is also a contributing factor to the weakness.”
Futures tumbled to as low as 24,941 rupees ($420) per 10 grams on the Multi Commodity Exchange of India Ltd. today, the cheapest since August 2011. The contract for delivery in August traded 1.3% lower at 25,049 rupees at 5:36 p.m. in Mumbai. Immediate delivery gold in London was 0.1% higher at $1,202.23 an ounce, 28% down this year.
Gold is heading for its worst year since 1981 after some investors lost faith in it as a store of value amid speculation the U.S. Federal Reserve will curb debt-buying. Demand in India has fallen after the government increased taxes on imports twice this year to try and rein in a record current-account deficit. The central bank has curbed overseas purchases on a consignment basis and limited imports for local consumption against cash only, prompting retailers to halt sales of coins and bars.
“Sales have fallen after we requested our jewelers to stop selling coins and bars,” said Haresh Soni, chairman of the federation. “There would be about 15% fall in gold consumption this year.”
Imports dropped 11% last year to 860 tons from a record 969 tons in 2011, according to the World Gold Council. Demand for jewelry and investment fell to 864.2 tons in 2012, the second straight year of declines, the council estimates.
Shares of Gitanjali Gems Ltd., Titan Industries Ltd., Tribhovandas Bhimji Zaveri Ltd. and Shree Ganesh Jewellery House Ltd. posted quarterly declines as retail demand weakens and costs of importing gold increases. Gitanjali will change its product mix to focus less on gold jewelry because of the state curbs, Chairman Mehul Choksi said June 25.
Gitimaya Rath, a lawyer in Talcher in Odisha, who bought jewelry worth 100,000 rupees in April, said he would wait for prices to fall further before making fresh purchases. “I should have waited as prices are still falling. I bought in April as my wife asked me to buy and keep it to gift my son’s bride.”
India could take more measures to curb imports, Economic Affairs Secretary Arvind Mayaram said June 18. Purchases were 117 tons in April after bullion entered a bear market, according to the federation. Imports were estimated at 162 tons in May, according to the Finance Ministry.
The shortfall in the current account, the broadest measure of trade, is the biggest risk to the $1.9 trillion economy, according to the central bank. The gap was $18.1 billion in January through March, compared with a revised $31.9 billion in the previous quarter, the Reserve Bank of India said yesterday. The deficit last quarter was 3.6% of gross domestic product, from an unprecedented 6.7% of the gross domestic product in October to December.
“Given gold buying over the past couple of months largely reflected frontloaded festival demand to take advantage of falling global gold prices, imports of gold are likely to have staged a retreat in June,” Mole Hau, an economist at BNP Paribas SA, wrote in a research note yesterday.
Gold is bought during festivals and marriages as part of the bridal trousseau or gifted in the form of jewelry by relatives. The festival season in India runs from August to October followed by the wedding season from November to December and from late March through early May.
“The fall in rupee against the dollar has negated the decline in international prices of gold, making imports less attractive,” federation’s Bamalwa said.
The rupee is down 7.4% against the dollar in 2013, the most after the yen in a basket of 11 Asian currencies tracked by Bloomberg. It slumped to an all-time low of 60.765 per dollar on June 26.