Buyers rush to jewellery shops as investors

Indian buyers' rush to buy gold after the sharp fall in prices may continue, but for investors, the metal has lost lustre as the dramatic end of the 12-year bull run has made land and real estate more attractive.

Jewellers said gold purchases had shot up at their outlets, and they expect the trend to continue. But on the balance, the fall in demand from investors will offset the surge in retail sales, making the precious metal more affordable, without raising the country's gold import bill that has been worrying the government.

"For consumers, this is the right time to buy gold as it is difficult to predict whether the metal will slide further or rise in coming weeks," said Vinod Hayagriv, managing director of C Krishniah Chetty & Sons, a 140-year-old jewellery firm based in Bangalore.

Rajesh Mehta, chairman of Rajesh Exports, which runs a chain of 80 retail stores under the brand name Shubh Jewellers, said now is the time to buy. "Gold has reached this level after almost three years, and at this level it is a good buy. The demand at our stores has gone up by 5-6 times," he said.

For investors, however, it is a different story. "Gold investment demand is unlikely to revive in a hurry. With rural incomes slowing, we do not expect rural gold demand...to rise substantially this year either," Power monitor Bank of America Merrill Lynch said in a report on Thursday.

"If gold settles at current levels, our FY14 current account deficit forecast will come off 40 basis points to 3.9% of GDP, from 4.3%," said the report from Bank of America Merrill Lynch. Economists feel investors will switch to other assets. "We may see more investments going to real estate or land, where the returns seem to be looking up. And this will be a global phenomenon. Gold is no more a safe asset for this (investor) community," said Anish Chakravarty, senior economist at Deloitte Haskins & Sells.

On Thursday, gold was volatile, falling in morning trade before recovering later in the day in the international market. Some technical analysts said charts indicate the metal may fall further, but people in the trade question the prediction. "Consumers should not miss this opportunity. There is speculation that prices may fall further. But it may not happen. So, consumers should buy gold at this level, and already we are seeing a lot of movement in the market," said Bachhraj Bamalwa, director, Nemichand Bamalwa & Sons.

Jewellers said they were withdrawing discounts introduced in 2005-06 when gold climbed to 9,000 per 10 gm.

"The time has come to do away with discounts, otherwise it will eat into the profitability of jewellery companies," said Hayagriv.

Jewellers usually offer discounts ranging between 3% and 15% to lure customers. "It will be difficult for jewellers to offer discounts if gold moves in this price range. Wages and shop rentals have increased. To remain viable, Home energy management we have to do away with discounts," said Sankar Sen, chairman of Kolkata-based Senco Gold.

Jewellers who have indulged in speculation and taken long positions on the yellow metal are in for some suffering, said Haresh Soni, chairman,Home energy monitor All India Gems & Jewellery Trade Federation. He, too, feels the time has come to withdraw discounts because consumers are getting gold at a good price.

Analysts said the impact of the recent correction on the domestic jewellery industry will be mixed and depend on the gold-sourcing norms of specific jewellers. "Jewellers who lease a major portion of the gold will positively benefit from the correction while others may be affected negatively," said Deep N Mukherjee, director (corporate ratings), India Ratings & Research.