Commodities | Sep 27 2006
By Greg Peel
This time last year the gold price was rushing headlong towards its highs, resulting in a fall-off in demand emanating from the traditional Indian wedding season. While gold may be associated with the more wealthy, even middle class Indians are expected to follow in tradition lest they jeopardise respect. However, last year saw many priced out of the market.
From the point of view of producers of coins and jewellery, it is the volatility of the gold price that is more worrisome than the absolute price. Moving markets expose producers to wholesale/retail price risk. Thus while end buyers may have backed off, producers backed off as well.
This year the story is somewhat different, or so those risking their money are prepared to believe. The gold price has fallen significantly from its May highs, and is finding some stability below the US$600/oz level. It is enough to encourage producers of coins and jewellery back into the market.
Nevertheless, the gold price is still about US$100/oz higher than it was this time last year. Why would buying that had disappeared then return now? The belief is that demand will simply adjust to the new level, provided there is some stability. The higher price is still lower than it was in May, and India is not simply about to abandon its traditions. Indians are becoming more wealthy, so it follows that their gold price tolerance should also increase.
At least that is the hope. Mumbai’s Daily News & Analysis (www.dnaindia.com) reports “Demand for gold is expected to rise by at least 25% in the festival season and banks are offering gold in various denominations ranging from 5 grams to 100 grams”.
And evidence of that demand is real. One Swiss gold refiner which supplies coins and bars to banks has seen sales shoot up from the usual 400-500kg per week to 1,000-1,500kg in the last two weeks. The supplier reported a scarcity of gold in the market, and similar reports have come in from the likes of UBS and Swiss Credit.
Daily News & Analysis reports ICICI Bank, HDFC Bank, Corporation Bank, State Bank of India, and Indian Bank are also offering gold coins especially for the festive season with images of gods and goddesses embossed. Corporation Bank expects to sell at least 10,000 coins by the end of December, after selling a similar number last year. And it is not just weddings which attract gold offerings at this time.
"We are mainly looking at companies that would like to gift coins to their employees or clients in the festive season," says NN Pal, general manager, Corporation Bank, adding that demand has already picked up. Demand is expected to remain strong till December as festivals come one after the other. Dassera will be followed by Ramzan Eid and Diwali, followed by Christmas.
Sounds like an expensive business.
"There was a brief lull in the last 10-15 days as people avoided buying gold due to Shraadh. Now that the no-buy period is over, demand is likely to spike," says an official from Indian Bank, which is also offering coins embossed with images of the Goddess Laxmi.
Indians are the world’s largest consumers of retail gold. With one bank retaining the services of another goddess – Bollywood star Soha Ali Khan – to endorse its offerings, early signs are that it could be a bumper gold season on the subcontinent.