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Rediff.com  » Business » Why gold demand for Akshaya Tritiya is likely to be subdued

Why gold demand for Akshaya Tritiya is likely to be subdued

April 29, 2014 09:24 IST

Why gold demand for Akshaya Tritiya is likely to be subdued

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Rajesh Bhayani in Mumbai

This Akshaya Tritiya, falling on Friday, might not be as exciting as it used to be.

At least, for gold jewellers.

For, gold has lost some lustre over the past year and this is unlikely to return so soon, resulting in erosion of interest among investors.

From Akshaya Tritiya last year, on May 13, gold prices are up 12.3 per cent (mostly due to lower rupee), investors have been on a selling mode globally and several restrictions on import and jewellery businesses have taken the wind out of the sails of the sector.

Jewellers have announced some offers to lure buyers but are not so aggressive.

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Image: A blacksmith holds on to gold rings at the gold market.
Photographs: Mohamed Nureldin Abdallah/Reuters

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Why gold demand for Akshaya Tritiya is likely to be subdued

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In the past two weeks, gold prices have again started inching up.

Physical delivery premiums are rising and there is an overall supply crunch in the market, in both official and unofficial channels.

Imports by private banks have come down, as most of them have yet to fix their annual targets and, hence, the premium on their officially imported gold has jumped to $110 an ounce from only $35 an ounce early this month.

The premiums used to be $15-160 an ounce in December.

“Because of the election-related vigil on cash transfers and the overall scenario this Akshaya Tritiya, demand for gold jewellery may be affected.

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Image: Physical delivery premiums are rising and there is an overall supply crunch in the market, in both official and unofficial channels.
Photographs: Reuters

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Why gold demand for Akshaya Tritiya is likely to be subdued

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“Jewellers, though, are prepared with stock to meet the suppressed demand,” said Haresh Soni, chairman, All India Gems and Jewellery Trade Foundation.

“We cannot compare sales to last year as it was a different story then.

“This year we have government restrictions, raw-material shortages and volatile premiums.

“But, you cannot stop Indians from buying gold, so overall people are positive about Akshaya Tritiya,” he added.

Unofficial imports of gold have been rising for a year, with the rise in import duty and restrictions on official import.

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Image: Unofficial imports of gold have been rising for a year, with the rise in import duty and restrictions on official import.
Photographs: Reuters

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Why gold demand for Akshaya Tritiya is likely to be subdued

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This channel has been drying over the past month, due to the polls, with a strict vigil on movement of cash and vigilance from law enforcement agencies.

Buyers of smuggled gold are not able to move cash.

In sum, jewellers are not so aggressive in announcing incentives for buying on this auspicious festival because they don’t see huge sales happening.

Many have already cut their marketing expenses, with the overall trend not in favour of the bullion trade.

A Mumbai-based jeweller said, “There is a possibility of lower buying this festival and in the coming months from rural consumers, as monsoon forecasts have been below normal and there are widespread fears of El Nino, which means rural demand will remain subdued for some more months.”

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Image: A goldsmith shop owner displays gold pieces at a gold market.
Photographs: Azad Lashkari/Reuters

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