Saturday, May 2, 2009

>Festival demand inauspicious for India gold sales

Mumbai - Indian jewelers' hopes that the Hindu holy day Akshaya Trithya would give a fillip to declining gold sales look to have been dashed, as many customers stayed away or scaled down purchases.

India is the world's biggest gold buyer, but imports have fallen to negligible levels in recent months as the rupee has weakened, making dollar-denominated gold more expensive to local buyers.

Akshaya Trithya, which fell on Monday this year, is considered an auspicious day to make long-term purchases or start new ventures - Akshaya means "the never diminishing" in Sanskrit - and has traditionally boosted gold demand in India. Gold sales usually pick up the week before the festival.

At around 14,800 rupees per 10 grams, retail gold prices were about 25% higher this year compared to prices at last year's festival, levels unattractive to India's famously price-sensitive gold buyers.

That increase is due to a weaker rupee - gold is denominated in dollars internationally - which at last year's festival was around 40 to the dollar against about 50 to the dollar this year.

"This year, we expect sales to be around 60% to 70% of the quantity we sold last year," said Pravin Mehta, vice president of the Madras Jewellers and Diamond Merchants Association. Mehta said almost a third of this year's purchases were sealed at lower prices as customers bought early.

Last year wasn't good for festival gold sales, either. At a retail price of about INR11,800/10 grams, sales were down 11% on the year at 49 metric tons, according to World Gold Council data.

In 2008, consumers in India bought 660 tons of gold, from total global demand of 2,907 tons, the WGC says, although Indian demand was down 14% on 2007 as prices on international markets rose.

Continued high prices have deterred buyers since the start of the yearand India's imports in the past two months have been negligible - less than 2 tons in the first quarter, against 62 tons in the first quarter of 2008, according to the Bombay Bullion Association. April has been a better month, however, with 10 tons imported so far.

Jewelers and dealers had pinned their hopes on Akshaya Trithya, South India's biggest gold buying festival, spurring a revival in local demand. Their focus will now switch to the various holidays and festivals of the second-half of the year, of which Diwali in November will be key to North India's gold industry.

Daman Prakash, director of MNC Bullion, a dealer in Chennai, said his firm's sales will decline by 40% to 50% at this year's Akshaya Trithya.

"Although the number of people visiting jewelry shops is encouraging, volumes of gold sold is not great," he said. "People were buying earrings where earlier they would have gone in for chains or necklaces."

Princeson Jose, chairman and managing director of Prince Jewellers in the state of Kerala, said he expects the value of items sold to rise 10%, although volumes would be much lower.

"Quantity is not happening as most buyers are going in for lightweight jewelry due to the high prices," he said, adding that people are waiting for prices to decline to INR13,000 to INR14,000 before resuming purchases.