Gold shines on Dhanteras; trade records 30 tonnes of sales, registers around 25% drop in demand against last year

Traders expected only 20 tonnes of gold to be sold in the domestic bullion market on Dhanteras this year, due to weak demand.

FP Staff October 28, 2019 08:14:33 IST
Gold shines on Dhanteras; trade records 30 tonnes of sales, registers around 25% drop in demand against last year
  • Gold sales on Dhanteras were more than expectations as it was recorded to be around 30 tonnes, said the national secretary of Indian Bullion and Jewellers Association, Surendra Mehta

  • The trade expected only 20 tonnes of gold to be sold in the domestic bullion market on Dhanteras this year due to weak demand

  • Discounts have been falling due to lower imports in the last few months, but could widen again if demand falters after the festival, said traders

After a damp start, gold sales on Dhanteras picked up with heavy footfalls noticed by jewellers by end of day.

Sales were more than the expectation as it was recorded to be around 30 tonnes, said the national secretary of Indian Bullion and Jewellers Association, Surendra Mehta.

He said that gold sales in the past few years used to be around 40 tonnes, but due to high prices and liquidity crunch in the market this year, it was expected that the sales might be around 20 tonnes. The sales have dropped by around 25 percent as compared to last year.

"We didn't expect so much sales because the demand for gold in the domestic market was down due to high prices," IANS quoted Mehta as saying.

Dhanteras, celebrated in northern and western parts of India on Friday, is considered an auspicious day for buying gold, silver and other valuables.

India is the world's largest consumer and importer of gold.

Gold is also considered a good hedge against inflation globally, especially in the time of economic slowdown and trade wars.

On Dhanteras, one of the busiest gold buying days in India, when demand peaks as buying bullion is considered auspicious, saw retailers dole out a wide array of offers to attract buyers.

“Jewellers are witnessing good footfalls today [25 October] due to Dhanteras. Retail demand was good after a long time,” said Harshad Ajmera, the proprietor of JJ Gold House, a wholesaler in the eastern Indian city of Kolkata.

Discounts have been falling due to lower imports in the last few months but could widen again if demand falters after the festival, Reuters said quoting said Mukesh Kothari, director at Mumbai bullion dealer RiddiSiddhi Bullions.

The domestic price of gold includes a 12.5 percent import tax and a 3 percent sales tax. The government has increased the import duty on expensive metals to 12.5 percent from 10 percent so as to reduce the import of gold due to which the precious metal became expensive in the country.

On 8 October, Mehta had said that due to weak demand, they expected that only 20 tonnes of gold will be sold in the domestic bullion market on Dhanteras this year.

Ajay Kedia, Director, Kedia Advisory, said that gold purchase was low by 25 percent as compared to last year.

The gold prices on Friday closed at Rs. 38,275 per 10 gm whereas last year the metal price was Rs. 31,702 per 10 gm.

The government has increased the import duty on expensive metals to 12.5 percent from 10 percent so as to reduce the import of gold due to which the precious metal became expensive in the country.

Gold futures were trading around 38,372 rupees per 10 grams on Friday, having hit a record 39,885 rupees last month en route to a roughly 22 percent gain so far in 2019.

“The sharp price rise and deep discount in the bullion market impacted trade and the consumer outlook in (the) September quarter. However, Dhanteras seems to have changed this as had been expected,” said Somasundaram PR, managing director of the World Gold Council’s Indian operations.

From an investor's perspective, gold returns in the past five years have been around 7 percent CAGR (compound annual growth rate). At the same time, equity returns for the same period have ranged between 12 and 15 percent, according to an ANI report.

"Therefore to reap returns from gold, one needs to position ahead of the uptick and move out as it peaks out," said Joseph Thomas, Head of Research at Emkay Wealth Management.

"If the rupee remains weaker from here and if current gold price levels in international markets are sustained, then domestic gold prices will remain well supported even at the current levels," he said.

However, fears of a global economic slowdown, continuing trade and tariff war between the United States and China, and geopolitical risks could help the price of gold to sustain at higher levels

Demand weak in China

Meanwhile, global benchmark prices eyed their best week in five. [GOL/]

At top consumer China, bullion was sold at a premium of $5-$6 per ounce, versus last week’s $4.75-$5.25, while long-drawn protests blotted out activity in Hong Kong, with premiums of $0.30-$0.50 being charged versus $0.45-$0.55 last week, according to Reuters.

“Demand was weak in China,” said Samson Li, a Hong Kong-based precious metals analyst at Refinitiv GFMS, adding “maybe supply chain will be keen to push out inventories by offering more jewellery discounts by December.”

Premiums in Singapore were at $0.70-$1 an ounce, against last week’s $0.50-$0.60, with Diwali demand mostly muted compared with previous years, traders said.

However, “we’re seeing a lot of clients coming to buy today mainly because of Diwali, as compared to rest of the week.” said Brian Lan, managing director at Singapore dealer GoldSilver.

In Japan, bullion was sold at par with the benchmark for the fifth-straight week as higher taxes marred demand, a Tokyo-based trader said.

--With inputs from agencies

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