High gold prices expected to impact buying sentiments

Tuesday, 28 January 2003, 08:00 Hrs
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NEW DELHI: Indian jewellery exporters fear a temporary setback in demand with gold prices ruling high on fears of U.S. military action against Iraq.

The precious yellow metal had breached the $370 per troy ounce mark in the international market Monday evening and domestic prices, reflecting developments abroad, climbed a six year high of 6,020 per 10 gram of 24 carat purity.

"With no announcement so far of an attack on Iraq, there was some softening in the international market price of gold to $367 per troy ounce level and in the domestic market early trading (Tuesday) at 5,950 per 10 gram," Shri Krishan Goyal 'Chandiwala', general secretary of the Bullion Merchants Association, told IANS.

"At this level there are more sellers in the market than buyers. So long as war clouds are hovering over Iraq, the prices will remain high," said Goyal.

"Nobody expected gold to reach this high level. As the bull trend is continuing, expectations are that the price may well cross the $375-380 per troy ounce mark if the U.S. strikes Iraq, though it may not reach $400 levels," said Sanjay Kothari, chairman of the Mumbai-based Gem and Jewellery Export Promotion Council (GJEPC) and a leading jeweller.

In the current scenario, Kothari said, buyers in both the domestic and international markets will tend to put off buying till the prices stabilise.

"The high prices will definitely hit exports. With expectations of the prices climbing higher due to the continuing uncertainty of a conflict in the Middle East, the buying sentiment will be low for some time," said Rajendra Bhola of Bhola Sons Jewellers, a major New Delhi-based exporter.

One of the largest export earners, the Indian gems and jewellery industry witnessed a 22.15 percent growth during calendar year 2002, with exports worth $8.7 billion as against $7.13 billion the previous year.

"With the dollar weakening and the share market and real estate not offering good returns, there is still some demand for gold as a safe investment. Yet the demand for gold will remain low in the domestic market for some time, while exports are also expected to face a temporary setback," said Pawan Gupta, a partner in PP Jewellers, the biggest exporter of gold jewellery.

The Indian market, the world's biggest consumer, is very sensitive to fluctuations in gold prices. Despite the high prices, the consumption of gold last year was not severely impacted though there had been more recycling leading to substantially lower imports last year, the bullion merchants said.

Traders like Gupta expect the prices to continue ruling high for some more weeks. By March end they could come down to around $320 per troy ounce once the share market sentiments become strong and the dollar also gains lost ground.

"In the international market the tendency would be to keep away from buying gold jewellery at this high level. But this situation can also work to India's advantage as the tendency in major markets is to go for studded jewellery, particularly low end diamonds in which we specialise, instead of plain gold, when the prices are high," said Kothari.

With a 60 percent share in the global diamond market, India witnessed 21.20 percent growth in exports of small sized precious stones to $6.89 billion in 2002, up from $5.68 billion during 2001, according to GJEPC, the nodal agency for diamond certification in the country.

Last year Indian gold jewellery had also recorded a significant 32.88 percent growth with exports worth $1.37 billion as compared to $1.03 billion in 2001.
Source: IANS
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