GOLD CRASH CAUSES COLLATERAL DAMAGE IN ZAVERI BAZAAR

Su-Raj Heading for Darkness as Gold Loses Shine Across World

Bullion banks invoke letters of credit worth . 4kcr on Mumbai jeweller's import

One of the biggest gold bets that has backfired involves a mid-sized jeweller, Winsome, with leading international bullion banks who dealt with it gunning for the company. It's understood that Standard Bank of South Africa, Standard Chartered London and Scotiabank have invoked letters of credit (LCs) worth more than . 4,000 crore after the company, formerly Su-Raj Diamonds, failed to cough up a smaller amount. 
Zaveri Bazaar, the country's jewellery hub, bullion traders in the city, and diamond houses in Mumbai and Ahmedabad — which got a whiff of the default — are trying to figure out how Mumbai-based Winsome Diamonds & Jewellery deals with offshore banks and a string of local lenders. 
Around a dozen banks in India had issued LCs favouring the three bullion banks that belong to the elite club of gold suppliers from whom Winsome imported the bullion. 
Letters of credit, a simple promise to pay, are issued by the banks of the buyers to comfort sellers that they will be paid as long as the terms of trade are fulfilled. 
The overseas banks pulled the trigger on Winsome following the devolvement of LCs worth about . 500 crore. Bullion Banks Play it Safe with Winsome 
"Of the . 4,000-odd crore worth of LCs, many are yet to reach the due date. Some were issued for a few group firms of Winsome. But the bullion banks are unwilling to take chances with the price of gold falling sharply," said a person familiar with the development. Banks have the right to invoke LCs before maturity if they fear the buyer may default. 
The buzz in the market is that the company, having contracted imports at a higher price, is backing out with gold falling unexpectedly. Sections think there could be more than what meets the eye and the drop in gold price has only compounded the problem. Since January 1, gold has fallen by almost 14% to $1435.31 an ounce through Monday. 
Ramesh Parikh, director (finance) at Winsome, denied market rumours. "We did not speculate on gold...our customers are taking time to pay," Parikh told ET minutes before his meeting on Tuesday with the consortium of local banks that issued the LCs. He hoped the banks would be "supportive" and the company would be in a position to meet all its commitments. Parikh refused to discuss the matter further as Winsome has moved the Bombay High Court to stay the invocation of LCs by Standard Bank. Scotiabank's India head Rajan Venkatesh did not respond to a text message while ET's email query to Standard Chartered Bank remained unanswered till the time of going to press. The local banks Winsome dealt with include Punjab National Bank, Canara Bank, Vijaya Bank, Central Bank, Bank of Maharashtra, Syndicate Bank, Bank of India, Axis Bank, State Bank of Hyderabad, State Bank of Mauritius, Union Bank, Oriental Bank of Commerce and Standard Chartered India. The extent of hit some of these banks take would depend on the margins they have collected from Winsome to part-cover their LCs, future recoveries and relationships with the client. Crisil has downgraded Su-Raj's rating to 'A4' and the company continues to remain on the rating agency's 'Watch Negative' list. This is not the first time Winsome (or Su-Raj) has hit the headlines for the wrong reasons. In 2012, the company, in its earlier avatar Su-Raj, came under the glare of US investigative agencies following allegations of undisclosed sale of synthetic diamonds. In the same year, the listed entity rechristened itself Winsome. Months later, chairman Jatin Mehta stepped down and Madan Khurjekar, a former Central Bank of India employee and an independent director in the company, took charge as non-executive director. Mehta, who holds shares in Winsome, is no longer on the board. He was unavailable for comment. 
The promoters of Winsome hold 25.21% while foreign portfolio investors have 58.6% shareholding. Of these, Passage to India Master Fund holds 9.55%, Sparrow Asia Diversified Opportunities has 9.4%, and Davos International Fund owns 8.02%, according to quarterly filings as on March 31 with the Bombay Stock Exchange. The share price of Winsome has remained relatively steady at . 23.5 over the past month through Tuesday.

Cotton: Stable in the coming year

However, the government decision on offloading stocks from state reserves will be key in driving domestic prices.

Asurplus situation for the third consecutive year in a row has led cotton markets across the globe to remain under pressure over the past oneand-a-half years. However, despite sufficient availability, prices have shown signs of recovery since the beginning of 2013 due to the robust demand from the largest consumer, China, and expectations that the US may witness a sharp fall in cotton acreage in 2013. In the domestic market, too, cotton prices have been on an upward trajectory for a couple of months due to dwindling supplies and expectations of higher exports amid sharp recovery in the global prices. 
    Cotton prices in the global markets are largely influenced by the demand-supply situation in three major producing and consuming countries — China, India and the US. According to the latest data released by the International Cotton Advisory Committee (ICAC), cotton production is likely to fall by 9.7% to 23.47 million tonne in 2013-14 starting 1 August this year. Global consumption will reach 23.71 million tonne in 2013-14, marginally higher than 23.41 million estimated for the 2012-13 season and, hence, stockpiles will fall next season to 16.44 million tonne from record high levels in 2012-13. 
    China is central to any discussion on cotton markets since it is the world's largest producer (27% share in global production), consumer (40%) and importer (38%). Another reason for China's commanding influence in the market has to do with government policies, which have seen it buy about 10 million tonne or 60% of the world's cotton stocks since 2011, when the country started building its reserves. The Chinese cotton policy functions through government reserves and import quota. However, the introduction of higher minimum guaranteed price in March 2011, which coincided with peak global cotton prices, resulted in a huge gap between the Chinese and global cotton prices. This led the Chinese spinning mills to become uncompetitive in the global markets, resulting in a sharp drop in consumption. Its production, 32 
    million bales (1 bale = 480 
    pounds) in 2009-10, rose 
    to 35 million bales in 2012-13. On the other hand, its consumption declined by 28% in the same period to 36 million bales. According 
    to China Cotton Association, the nation will continue its controversial cotton stockpiling policy this year, which will continue to boost the imports. 
    The US, which is the largest supplier of cotton to China and the global markets, may see a drop in acreage and output next year beginning August 2013. According to USDA's National Agricultural Statistics Service (NASS) report, the decline is because of the price slump and demand erosion, which has pushed the growers to shift to more remunerative crops. Based on a survey of 83,500 farmers, the USDA estimated upland cotton plantings would drop by 19% to 4.1 million hectare. With the expected drop in the US acreage, the world acreage and output may be adversely hit in 2013-14. 
    India commands importance in the global markets as it is the second largest producer, consumer and exporter of cotton. In fact, market participants across the globe are eyeing the cotton trade policy developments in India as it supplies a significant part of its produce to the global markets. It witnessed a sharp rise in yield after the introduction of genetically modified cotton seed, BT Cotton, in 2002-3, which altered the country's status from net importer to net exporter. In the past 10 years, domestic production has surged dramatically by around 153% and stood at 35.5 million bales (1 bale= 170 kg) or 6.03 million tonne in 2011-12, while the consumption has increased by 54% to 26 million bales or 4.4 million tonne, leaving a big scope for exports. 
    After exporting a record 12.95 million bales in 2011-12, the exportable surplus in India is estimated at 8 million bales by the Cotton Advisory Board. This is due to the 7% decline in production to 330 lakh bales in 2012-13. The current estimates for production, consumption and exports point to stable prices in the crop year 2012-13. However, exports are set to cross the surplus levels and the government decision will be key in driving domestic prices. If it considers offloading stocks from the state reserves, the prices may face downside pressure in the short term.

The writer is Associate Director, Commodities & Currencies, Angel Broking

Is this a good time to purchase gold jewellery?

The sudden crack in gold prices has created a flutter among gold aficionados. For those who firmly believed that gold only increases in value, a 20% slide has come as a rude shock. Now that this notion has been dispelled, consumers and investors alike are in two minds as to how they should approach the yellow metal. Is this the ideal time to purchase gold jewellery after the prices have softened? Or should one wait and watch? Sanket Dhanorkar asked some experts for their opinion. Here's what they had to say.

R Venkataraman MD, India Infoline 
Yes 
The recent, sharp decline in gold prices has shaken the market out of its comfort zone. It is a unique situation because the investors who are holding on to their gold positions are unhappy that the prices have gone down, whereas the women who have been wanting to buy jewellery ever since the stark rise in prices, are delighted and celebrating the fall. At the end of the day, gold is a commodity, and all commodity prices go through cycles. Apart from having limited use as jewellery, gold is also perceived as being a store of value from historical times. 
    From 2000 onwards, gold has had a dream run, with prices rising significantly on a yearly basis. However, people have forgotten that there was a period during the 1990s, when gold prices had declined continuously. The recent collapse of gold prices can be attributed to a combination of factors, including the speculative sell-off and recovery in the US. If the interest rates in the US go up, gold will start competing with the US treasury. After the subprime crisis of 2008, investors across the globe had bought gold as a store of value. As the world economy stabilises and people's faith in the banking sector recovers, gold is likely to lose its sheen. 
    My recommendation to investors and savers is to start investing in a disciplined manner and spread the gold purchases over a period of time. Reduce the gold allocation in your portfolio as we think the prices will witness a consolidation and stabilise at around $1,200-1,300 because this is the marginal cost of production. 
    For those interested in buying jewellery, there is no right time to do so. Whenever you can afford it, walk into the nearest jewellery shop, buy and indulge yourself.

Raghvendra Nath 
MD, Ladderup Wealth Management 
Yes 
In India, where almost every family has some investment in gold, the reaction to the fall in prices has been shocking. Suddenly, people have realised that gold prices don't follow a one-way-street. The metal has been the favorite investing destination for Indians, so it's not going to lose its sheen so easily. The long-term history of gold clearly shows that it has been able to beat inflation consistently. If this is the case, a short-term price correction should not rattle investors. 
    The people who buy gold jewellery with the dual objective of usage and investment should not be worried at all. The logic is simple. If gold prices were to go up to 50,000, would they sell their family jewels? Probably not. Then why should they be worried when the prices have fallen a bit after a heady rally of several years? 
    So, if you had postponed purchasing gold jewellery because of high prices, technically, it is now available at a discount. Considering the fact that the discount could become sharper in the days to come, you could consider spreading your purchases, if possible. 
    If, however, you are a financial investor looking to profit from gold in the short term, say, 3-4 years, it is a completely different story. Any investment for the short term has to be weighed against other investments with comparable risk and return. So, one should consider the potential appreciation in gold versus other asset classes like fixed income. 
    Considering that in four years a fixed deposit would grow by almost 40%, we have to evaluate whether gold will be able to beat it sufficiently or not. The probability of this is quite low as gold has already rallied for more than a decade, with the past three years being the most aggressive. Therefore, the expectation of the rally continuing at the same pace would be quite optimistic. Most of us would agree that gold had become an overpriced asset and the recent correction has made the price a little more reasonable.

Kishore Narne 
Head, Commodity & Currency, Motilal Oswal Commodities 
Maybe.. 
The answer to this question will vary depending on who asks it. It could be a 'yes' or 'no' according to the person's need and purpose. If one has been postponing the purchase of jewellery, but needs to buy it over the next three months or so, this could be a welcome dip. Even so, one should wait for a few more days so that the high premiums quoted by jewellers cool off and they get the right price for their purchase. If, however, the purpose of buying a gold coin or bar is for investment, then the answer is 'no'. Though we have been anticipating a correction in gold price, the intensity was a surprise. The sheer quantum of the fall warrants a pullback in days to come, but won't justify buying gold as an investment. 
    The factors that had prompted the rally in the past five years have started to fade. The global economy is turning the corner and the US is showing signs of recovery. Though Europe is yet to come out of the woods, most of the issues will be addressed by politicians who can't afford to let the Euro area collapse. In the process, gold may come to their rescue. As the economies improve, the monetary policies in the western world could tighten, and the biggest threat to gold is rising interest rates in the US, which can happen much earlier than the Fed has predicted. 
    For Indians, the rupee will play a crucial role in the coming months. With the recent price correction in crude oil and gold, the rupee should benefit as the current account deficit will improve over the next few months. We expect the rupee to appreciate by more than 10% by the end of this fiscal year, which could increase the pressure on domestic gold prices. 
    In this background, we expect gold prices to correct, and though they may get supports close to the 22,000-24,000 levels, we don't see any significant rally in gold till next year, which makes it unattractive compared with other investment avenues. One can start accumulating gold close to the above-mentioned levels, but keep in mind that the golden era has ended for at least a couple of years.

Gold crashes by 1k per 10gm in Mumbai

Mumbai: Gold prices fell sharply by almost Rs 1,000 on Friday night to Rs 28,100 per 10gm, down from Rs 29,005 earlier in the day. With fears of a global slowdown taking a toll on international bullion prices, the industry fears that rates could eventually slide to Rs 22,000-23,000 in the run-up to Diwali. 

    In the international market, gold dropped more than 4% on Friday to its lowest since July 2011, breaking below $1,500 per ounce as bearish factors — including a draft plan for Cyprus to sell bullion — forced prices to capitulate. 
    In the Mumbai market, gold prices closed at below Rs 29,000 at Rs 28,890 per 10gm from Wednesday's close of Rs 29,390 (there was no trade on Thursday on account of Gudi Padwa). After market hours, fear gripped bullion traders who were attending a cricket match organized by the Bombay Bullion Association (BBA) at the police gymkhana at Marine Drive. Informaltrade conducted on the spot pulled the yellow metal's price further down to Rs 28,100. 
    Confirming the Rs 1,000 intra-day drop in gold prices, Kumar Jain, vice-chairman of the Mumbai Jewellers Association, said, "The international slowdown in gold prices has hit India in a significant way. Investors will be disappointed and will look to sell at the earliest opportunity. But this could be good news for retail buyers with the wedding season coming up in May. We saw fair sales at Gudi Padwa on Thursday and perhaps small buyers will approach the market with a further fall." 
    BBA president Mohit Kamboj was less optimistic. "The current scenario certainly does not make for a buyer's market. People will wait for prices to drop further. The sale of exchange-traded funds (ETFs) and short-selling by investors has contributed to the decline. However, maybe a correction was in order given the astronomical rise in bullion over the past few years," he said, while painting a similar picture for silver as well. 
    The May 13 festival of Akshay Tritiya, which is one of the most significant days for people to invest in bullion, may also witness a drop in sales.