Buyers return as gold melts to 3-mth low

YELLOW FEVER

Jewellery shops in metros see first rush of business ahead of festival season as precious metal softens

INDIAN consumers have begun buying gold even before the traditional festival season, which is barely two weeks away, as greater confidence in the global economy whacks gold to a three-month low. Their buying spree could continue beyond Diwali as speculators are betting gold prices could drop further in the coming weeks.
    Though the current price of 1,775 per gm is 25% higher than last summer, metros are seeing the first rush of business in a long while, say excited jewellers. They are already redoubling promotions and marketing schemes to tempt buyers into extending their budgets. India is the world's largest gold consumer.
    Mehul Choksi, managing director of jewellery retail chain Gitanjali Gems, says, "Since gold prices have fallen, we see huge traction in demand in the festive season. We see 15-20% growth in sales volume in October-November over the previous year. As far as price is concerned, it will remain on the lower side, except for once when demand will be at its peak." The 6,500-crore Gitanjali Gems owns brands like Nakshatra, Gili and Asmi.
    Gold prices have been falling for several successive trading sessions since last week, making it the first longish dip since the start of 2010, unleashing pent up demand. And if prices slide further as anticipated by market analysts, more people will be encouraged to buy. Paradoxically, most consumers are aware that this dip will be short-lived as long-term factors that fuelled the gold bull are intact. This awareness will further trigger demand. Gold futures may also decline
    SALES are picking up in the South as well. "We are seeing robust buying even now in Aashad, normally considered inauspicious in the Hindu calendar. Buyers are clearly looking to buy gold cheap and any opportunity will not be missed. The demand is already there and definitely it is not festival-centric," says DV Ramesh, chief executive of Davanam Jewellers, leading jewellery retailer in Bangalore.
    Prominent jewellery retail chain Joyalukkas has seen sales rise by a fifth in its Tamil Nadu outlets and about 15% in Kerala, says PP Jose, general manager. "The demand will be excellent as the pre-season sales itself is very good," said the chairman and managing director of Coimbatore-based Kalyan Jewellers, TS Kalyanaraman, who is expecting sales to be double in volume over last year.
    Even non-banking financial institutions like Manappuram General Finance and Leasing, which provide finance against gold, are optimistic of higher disbursements ahead of the festival season.
    "The pre-festivity loan demand should be good. Typically, loans in the month before festivities rise by 20% over a normal month. Although gold prices have softened now they are still 10-15% higher compared to the same period last year," said I Unnikrishnan, managing director of MGFL. Banks too are offering interestfree loans to buy jewellery.
    Jewellery had become unaffordable for most urban families as economic jitters pushed bullion to record highs. Gold prices in India rose 15% in the last quarter alone, says industry body World Gold Council.
    Gold futures are expected to decline to $1,127 an ounce from an all-time high of $1,265.30 on June 21 in the next several weeks, according to technical analysis by Barclays Capital. Investors reduced their holdings in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, for three consecutive weeks. Speculators, including hedge funds, cut their net-long position in New York gold futures by 13%, according to US Commodity Futures Trading Commission data for the week ended July 20.
    Indian traders are equally bearish. "The Indian rupee has strengthened by 1% and all these things put together have pushed down gold prices by 4% this week. Price will remain subdued in the near term but in the long-term it might appreciate," says Pankaj Parekh, chairman (eastern India), Gem & Jewellery Export Promotion Council.
    "The alpha traders (traders who want abovenormal returns) are now bullish on copper and crude oil and they are investing these sectors. Even the hedge funds and index funds are moving away from gold and are investing in these two commodities. However, I feel that gold demand will surge around Diwali," said Biren Vakil, CEO of Kolkata-based Paradigm Commodity Advisors.
    Analysts are advising their clients to buy more gold-related products. "We are recommending our retail clients to invest gold exchange-traded funds while wealthy individuals are being advised to look at bullion futures. For institutional clients, the best way is to invest in bullion futures and deploy some of the idle funds into ETFs," says KN Rahman, head of research at Way2Wealth, a financial advisory firm.
    (With inputs from Sutanuka Ghosal in Kolkata, PK
    Krishna Kumar in Cochin, Rituraj Tiwari in Jaipur,
    Pramugdha Mamgain in Delhi)

It’s maths: Food inflation drops,prices rise

eight-month low will ease pressure on the Reserve Bank of India to raise rates immediately to check wholesale price inflation, which crossed into double digits in May. The index for food articles rose 0.34% during the week as cereals and, fruits and vegetables became costlier. A truant monsoon could push up prices of food articles further.
    The government was counting on a good monsoon to cool prices and inflation expectations, but the onset of monsoon's progress has been shaky though the met department is staying with its initial forecast of normal rains. Monsoon rains were 16% below normal in June, data from the India Meteorological Department (IMD) showed on Thursday.
    "Food prices are likely to ease in the second half of the year with a good monsoon. But now fuel prices have increased, there will be some impact on prices of perishable food items as freight THE stubborn food price inflation finally showed some signs of easing, providing a breather to the government that came under attack for raising fuel prices last week despite high food prices.
    The year-on-year inflation for food items dropped sharply to 12.92% for the week ended June 19 from nearly 16.9% for the previous week, largely due to a statistical phenomenon called the base effect, which reflects high food prices prevailed last year. Food prices actually rose during the week prompting experts to say that inflation could rise again.
    "This is largely the base effect at play. There will be an increase in food prices again when the fuel price hike gets transferred," said M Govinda Rao, director of National Institute of Public Finance and Policy, a Delhi-based think tank.
    The decline in food inflation to an costs will also increase," said DK Joshi, head economist at rating agency Crisil.
    The recent increase in fuel prices will push the wholesale price index by 0.9% and will have a larger impact over a period as higher energy and transport costs push up prices of other commodities.
    The fuel price index was up 12.90% for the week compared with last week's annual rise of 13.18%. The wholesale price index based inflation was 10.6% for the month of May. The retail inflation, measured by the consumer price index for industrial workers, climbed to 13.91% for May, confirming the fears that food inflation was spreading.
    The opposition parties have called for a nationwide strike on July 5 to protest fuel price increase and high food prices.
    The RBI has been under immense pressure to raise rates to check rising inflation, but the decline in food inflation will allow the central bank to delay the expected rate increase to its July 27 monetary policy review.
    On Tuesday, RBI deputy governor Subir Gokarn said containing food prices was a dominant policy concern of the RBI. "It has created a huge challenge in terms of the impact of monetary action on control of inflation," he said.
    However, signs of weakening manufacturing growth could restrain the central bank to a moderate hike. The Purchasing Managers' Index fell to 57.3 from 59 in May, as per a statement from HSBC Holdings and Markit Economics.
    "The inflation numbers will continue to remain high in the coming months. I think the RBI will not be too aggressive in its policy review as inflation is a supply side problem and not due to excess liquidity. I would look at a 25 basis hike in repo and reverse repo rates by the RBI," said Siddharth Shankar, director, Kassa Financial Services Group.
    The central bank has raised rates by 25 basis points each in March and in April.