THE SUNDAY STORY Gold buying usually peaks during the festive season currently underway, and buying gold is viewed as auspicious. But a combination of factors — record high prices, high inflation and the availability of other investment options — could test gold demand.

The Indian consumer’s legendary appetite for gold is likely to be tested this festive season, given the high prices the precious metal has scaled in recent times.

Gold buying usually peaks during the festive season currently underway, and buying gold is viewed as auspicious. But a combination of factors — record high prices, high inflation and the availability of other investment options — could test gold demand.

True to its oft-touted role as a hedge against inflation and a ‘store of value,’ gold prices have gone up 10 per cent this year and a whopping 31 per cent in 2011, when several other asset classes floundered. It is hovering around Rs. 30,000 per 10 grams now.

“There is an impact of the overall sentiment on demand with the economic slowdown, the rupee depreciation and so on. There are a number of issues clouding the horizon, and not much has really changed,” feels Amresh Acharya, Director-Investments, World Gold Council (WGC).

Gold buying is determined by the saving potential and the price point at which gold is ruling. Renu Singh, a homemaker from south Mumbai, says that this year, gold buying will be ‘need-based,’ and a response to the occasion. “Where is the feel-good factor to purchase gold?”

As an asset, gold is unique as it lowers the risk and volatility of a portfolio and also has a low correlation with other assets. In the Indian context, it also acts as a hedge against inflation and currency depreciation.

Nilesh Gupta, a gold jewellery exporter and Director–Business Operations, Bombay Bullion Association (BBA), reckons that there is a change in the mindset of consumers. “People now buy gold with a fixed budget in mind during festivals or marriages. They buy irrespective of the ruling price.”

Mr. Gupta feels that gold has been gradually coming down the priority list for buyers over the years. “Owing to lifestyle changes, consumers prefer white goods and invest a lower proportion of disposable income in gold.”

This is borne out by Rajesh Solanki, proprietor, Zaveri Kapoorchand Lalchand Jewellers and a third-generation jeweller at Mumbai’s well-known Zaveri Bazaar. “This year, there has been no surge in gold or jewellery buying. It normally picks up 25-30 per cent at the onset of the festive season.”

“As a business, turnover has not greatly declined because of the high prices but grammage sold, a parameter for us, has been declining over the years. There is a marked shift towards pure gold products like coins and guineas, given their resale value. Studded jewellery entails making charges, bill charges and VAT, and resale value is lower,” Mr. Solanki explains.

Clearly, though the share of money going into gold purchase has not gone up, the number of buyers certainly has.

“Come the festive season, people will continue to buy gold irrespective of the price as it fulfils a socio-cultural role. The question really is how much they will buy and on how many occasions,” says Mr. Acharya.

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