Gold prices in India have rallied 22% this year, leading people to raid the jewelry box and cash in their old baubles.
In rural India, farmers are welcoming the recent monsoon that ended a multi-year drought, and using the proceeds from the sale of old gold to buy extra seed. These rural farmers are almost entirely dependent on the rains for a good haul from their crops. At the same time, in the cities, people are now flocking to the bazaars to turn out-of-fashion jewelry into cash. So much scrap gold has hit the market, gold imports to India last month fell by over 77% from last year to “only” $1.11 billion. Annual gold imports for 2016 are also on pace to fall far short of years past.
The same high prices that are luring grandma’s old necklace out of hiding are putting the damper on jewelry sales in the third quarter. The vast majority of Indian gold demand, which perennially ranks in the top two in the world along with Chinese gold demand, takes the form of jewelry purchases. Many families have decided to postpone their purchases until prices drop again.
Scrap gold is now supplying 45% to 60% in Indian gold demand, according to Bachhraj Bamalwa, director of All India Gems and Jewellery Trade Federation. The Wall St Journal recently quoted New Delhi homemaker Shalini Goel to illustrate why. She said, “I was waiting for prices to touch 30,000 rupees (per 10 grams). I came running to sell as they did.” The sale of her 25-gram necklace and some tiny bracelets got her 15 times their original value.
The Laad Gold Bazaar in Hyderabad, India
Shopkeepers in India’s gold bazaars are holding out hope that the start of the fall festival and wedding season will see their customers coming in to buy, instead of sell. Traditionally, Indian weddings are huge gold-buying events. This is true not only in terms of what gifts are given to the newly joined couple as a way to begin establishing their wealth, but also in the adornments for the wedding ceremony itself.
The surge in sales of scrap gold in India also points to one of the overlooked rationales for storing one’s wealth in gold. Because it is so liquid, gold owners have no difficulty in finding a place to sell their gold when the time comes.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.