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Nov 1, 2010
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Gold price hikes hit sales in India as Diwali approaches

By
AFP
Published
Nov 1, 2010

MUMBAI, Oct 31, 2010 (AFP) - Soaring prices are making Indians hesitant about buying gold as the Hindu festival of Diwali approaches, despite it being seen as an auspicious time to purchase the precious metal.


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Firm international and local prices have made people delay or stagger buying, hoping that prices level off as the annual wedding season starts next month, analysts and consumers said.

Shantilal Makwana is typical of many Indians. He is looking to buy jewellery for his teenage daughter, which he will give to her when she gets married.

But he has been watching and waiting for three months to see if prices fall.

"I've saved up money. It is an auspicious time, but gold is just too costly," said the 46-year-old, who works at an electronics repair shop in India's financial capital, Mumbai.

"I will wait till prices drop," he told AFP.

International gold prices have gone up by 27 percent this year, hitting a record 1,387 dollars an ounce, as investors look for a safe haven amid continuing economic uncertainty and a weakening dollar.

Since 2000, when gold was an average of 255 dollars an ounce, prices have skyrocketed by nearly 400 percent. Industry figures have predicted that prices could hit 1,450 dollars an ounce by the end of next year.

India is the world's largest importer of gold, with jewellery bought either as an investment or to wear. Bars, coins and exchange-traded funds are usually purchased for wealth creation.

Demand traditionally peaks in early November on "Dhanteras", the first day of Diwali.

But this year could be different, a local industry body said.

"Demand is down by at least 40 percent," said the director of the Bombay Bullion Association, Haresh Kewalramani, who owns a silverware firm in Mumbai's jewellery quarter. "People are waiting for a correction."

Analysts also say demand could waver.

Anand James, chief analyst with trading firm Geojit Comtrade, expects demand to "taper down marginally" this year.

"It will not be drastic fall but we could see an impact," he told AFP by telephone from the southern city of Chennai, which is a major gold centre in India.

The country head of the World Gold Council (WGC), Ajay Mitra, said he was confident that sales would pick up.

"Indian consumers are price sensitive. They wait and watch during periods of high volatility but when prices show signs of stabilising, demand comes back," said Mitra.

India buys an average 700 to 800 tonnes of gold every year, making the country the largest consumer of the precious metal in the world.

In the first six months of this year, India bought 365 tonnes of gold -- nearly double last year's volume -- worth 13.5 billion dollars, according to the WGC.

The country's largest importer, state-run trader MMTC Ltd, has said it plans to bring in more than 200 tonnes of gold in the financial year ending March 2011.

One of India's oldest branded retail jewellery chains, Tanishq, which is owned by the Tata conglomerate, says demand for gold jewellery has risen by 10 percent since last year.

"Consumer confidence has improved due to economic recovery and a boost in rural income," said Sandeep Kulhalli, vice president of Tanishq, which has 120 showrooms across the country.

But Kewalramani argues that gold has got costlier.

"With a fixed sum, you could have bought more gold last year," as local prices have jumped 25 percent from October last year, he said.

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