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[email protected] High, Crosses Rs 31K-Mark

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Sunita Madhvani (name changed) can't stop smiling as she hears that gold closed at an all-time high of Rs 31,000 per 10 grams in the Mumbai market on 23 August. And why not? February last year, just before her marriage, she bought gold at the rate of Rs 18,000 per 10 grams. Now, she has made a notional gain of over 72 per cent in less than 16 months. Madhvani isn’t selling her jewellery — as many are — to make a quick buck in this bullish gold market.

On 23 August, Indian gold prices in the futures market on the multi-commodity exchange (MCX) zoomed to touch Rs 30,699 per 10 grams. At 19:35 IST, the price of gold came off from its high to trade at Rs 30,643 per 10 grams. The prices in the spot market on the MCX closed at Rs 30,495 per 10 grams. In the retail market prices are usually Rs 800-1000 higher than the spot market. “The rally has been on the depreciating dollar after the US Fed put QE3 (quantitative easing) back on radar. This has boosted sentiments globally,” says Naveen Mathur, associate director at Angel Broking. But he is quick to add that the price may not remain at these higher levels in the near-term due to profit booking at record levels. However, compared to the global market, gold is still trading around $1,665 per ounce, 13 per cent lower than its all-time high of $1,920 per ounce.

But the rising gold price has also seen demand withering away for the yellow metal in India which has been losing its position as world's largest consumer of gold to China. In the first six months of the calendar 2012, Indian demand for gold (jewellery and total bar and coin investments) has seen a 34 per cent fall in gold consumption to 388.9 tonnes, compared to 585.1 tonnes in the corresponding period of last year. In the same period, China witnessed a marginal growth of 2.5 per cent in gold demand to 400.1 tonnes, compared to 389.1 tonnes in the first six months of calendar 2011. The subdued demand for gold in India has seen the overall gold demand in the world declining by 12 per cent to 1,579 tonnes (1,786.8 tonnes).

The fall in gold consumption in India due to legal and regulatory developments has seen the World Gold Council (WGC), a market development organisation working with local jewelers, come out with collectables jewellery for encouraging demand in the Indian market. Today the WGC introduced Azva, a wedding collection that is designed in 22 carat gold. The collection ranges from 70 to 300 grams per set and consists of a necklace, earrings and bangles or a bracelet.

“Our new bridal initiative is because 50 per cent of gold consumption comes from jewellery and therefore we are focusing on it,” says David Lamb, managing director-jewelry at WGC, who adds that despite the huge demand only 5 per cent of it is branded, which makes it a good potential market. Lamb adds that the increased focus on India is because the country’s consumption of gold in three months is greater than the full-year demand of gold in US. However in terms of margins, the west is better than India and China. “The focus in US and Europe has been on premiumisation where margins are higher,” says Lamb. He adds, compared to India and China where gross margins in jewelry is around 11-12 per cent and 20 per cent, respectively, in US and Europe margins are clearly above 50 per cent. But in terms of carat, India and China still prefer gold jewelry to be made in 22-24 carat gold. Though the market for 18-carat gold is on the rise due to rising prices. In India the market share for 18-carat gold has been 10 per cent, while in China its 15 per cent.

So where in the yellow metal heading? Says Mathur of Angel, “It’s going to stay high. Even profit booking at higher level can see it fall to Rs 28,500-29,000 per 10 grams.” Adds Lamb, “Demand will continue, as 64 per cent of women in a survey said they will consider purchase of gold jewellery in the next 12 months and interestingly 49 per cent said they will spend more, compared to 11 per cent that said they will spend less.” Mrs Madhvani can keep smiling.

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india commodities china gold mcx gold price