Gold trade needs help

Despite a slump in the rest of the world, the Indian bullion industry is witnessing an unprecedented boom. For the calendar 1998, Indians...

Despite a slump in the rest of the world, the Indian bullion industry is witnessing an unprecedented boom. For the calendar 1998, Indians are expected to buy over 700 tonnes of yellow metal as compared to 600 tonnes bought in the previous calendar. In fact, for the first half of the current year, total gold demand in the country was up by 33 per cent to a record high of 458.2 tonnes.

Indians are buying more gold than before. The demand for gold in India has broken all its previous records. Due to this increased demand, we expect the prices to firm up by another 5 per cent. Due to liberalisation in the gold import norms, more people are now buying gold and we foresee a good future for the industry.

Despite world gold prices at a new low of about $ 275 per ounce, Indians are still paying a very high price for the yellow metal. The depreciation of Indian rupee as compared to the US dollar is affecting the landed cost of gold in India. If the rupee is strong and simultaneously, the international prices alsofall, the prices in India will also crash. If we include various taxes like import duty, jewelers margin etc, the cost of acquisition goes up further.

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India is the biggest customer of gold in the world and it will continue to remain so in future. If the price of gold falls further, more people will buy gold at lower prices, and demand automatically shoots up. The statistics for the current year has proved that despite a recession in the Indian economy, gold consumption is booming.

In the last quarter of the current year due to festivals in India, demand always goes up, which is expected to revive the entire world’s gold industry. The industry is closely looking at the demand from Indian subcontinent.

The craze for the yellow metal in India can be gauged by the fact that gold demand in the second quarter of 1998 rose by 15 per cent despite a crippling recession in the country. India’s demand was second only to the United States, where it was up 19 per cent due to strong investment demand. The quantitywas, however, less at 83.7 tonnes.

Overall, global gold demand recovered sharply during the second half of this year as massive dishoarding in South-East Asia and South Korea came to an end.

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We have made representations to various governments in the past and also to the present government to re-start forward trading in bullion business. In fact, we have been doing forward trading in the past until it was banned by Morarji Desai Government.

We have asked the Ministry of Civil Supplies (which is monitoring the bullion trading in the country) to look into our demands as it would give an important boost to our business. Besides, the customers would benefit if we can reduce the octroi and sales tax on gold and silver.

Due to the economic crisis, Russia had made an announcement to sell gold in the international markets which has affected the London gold prices considerably. But, later it has decided to sell more platinum and palladium. Due to this development, the prices have stabilised and we expect theglobal prices to firm up in the coming months. If international prices stabilise, the prices in India will also stabilise, as a result. We have analysed the international markets and expect the prices to recover by 4 to 5 per cent. In India, gold could touch around Rs 4200-4300 per 10 grams.

The author is the president of the Bombay Bullion Association.