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)