The demand for physical gold on Dhanteras, the second day of the Diwali festival, considered auspicious to buy the yellow metal, is likely to stay muted this year. While domestic gold prices are trading at levels similar to the last festive season, bullion traders say demand is likely to be “dismal”.
According to Bombay Bullion Association (BBA) estimates, demand for gold coins and jewellery declined by 75% and 60% respectively in the two weeks leading to Dhanteras, compared with the same period last year.
“Buying activity is impacted by the economic slowdown and higher volatility in gold prices,” said Suresh Hundia of BBA. He pegged the festive demand led monthly imports around Diwali at 80 tonne last year.
“This year, while imports are yet to pick up following clarity around the new import rules, supply in terms of recycled gold and illegal channels seems sufficient to meet the slow demand,” he added.
On Thursday, standard gold prices in Mumbai were quoted in the range of Rs 30,800 - Rs 30,700 per 10 gm. Last week, prices touched a two-month high of R32,015 as international spot prices rallied towards $1350 per ounce. Even the premiums had soared to $125 per ounce as traders expected festive demand to outstrip supply.
However, in the last two trading sessions the premiums have fallen to $70-$50 because demand seems lower than earlier expected.
“Lower pick-ups in the last weekend on the occasion of Pushpa Nakshtra may be a precursor of subdued purchases on Dhanteras. Instead, investors were either liquidating some of their gold holdings on higher prices or considering silver as the auspicious token investment,” said Mukesh Kothari, director of RSBL, one of the leading bullion dealers of India.
Kothari pointed out that in the last six months, prices have turned volatile in the range of Rs 28,000 and Rs 32,000. As a result, investors are postponing their buying activity.
Some experts, however, said the slowdown in investment demand may be more severe than the slowdown in demand for physical jewellery.
“Investment demand is currently capped due to price fluctuations and the future outlook on prices. Even restrictions on the sale of coins and bars have impacted investment demand. However, jewellery demand is likely to be less impacted as most of it is wedding-linked,” said RK Sharma, chief operating officer, PC Jewellers.
He added that while every year, jewellery purchases during Diwali jump by 20%-25%, the growth may be