Gold prices hovering at record high levels and many investors seeking an entry in Gold investments and make stunning gains, will the present time is the right time for investors to enter into gold investments? Is there a slump in the offing in near future for gold prices? Will India’s gold demand revive again? These are some of the questions that stir up in one’s mind when one sees sky rocketing gold prices even in the near zero demand for jewellery or coins. Gold imports in India are the worst affected as it fell to almost half during the month of May 2010.

Suresh Hundia, President of India’s largest bullion traders’ association, Bombay Bullion Association (BBA) explained the current status on gold demand and future outlook for prices in an interaction with Rutam Vora of Commodity Online. Hundia elaborated on trends of India’s gold demand and the country’s significance in the international gold price determination.
Excerpts:

Commodity Online: International gold prices are scaling to $1255-60/oz, while in India prices are hovering at Rs.18800 per 10 grams, where do you see gold prices going further in current year?

Suresh Hundia: There is still room for upward movement in gold in the international market. However, no demand is visible in India or in the international markets. The prices have rose sharply in past few trading sessions and may remain range-bound between $1300 an ounce at the upper level and $1150 an ounce at the bottom level.

CO: India’s gold imports in May fell by 50%, whom do you attribute the fall to? Will this bearish trend continue with respect to imports?

Hundia: During April 2010, the imports were up mainly due to stockiest buying for the marriage season coming in May. However the buying spree could not sustain as the prices started hitting upper levels. India imported about 17 tonnes of gold during the month of May 2010, which is half of what was imported during April 2010. In April imports stood at 34.2 tonnes.

CO: What has been the preference of the investors for investing in guinea, coins, jewellery and ETFs? How has been the demand for jewellery in recent months?

Hundia: There is no demand in India or for that matter in the world for gold jewellery or coins. Reports have suggested that physical demand has been on a slide. We see demand only from ETFs, which are also treading at higher levels. Prices had hit the recent highs, hence jewellery buying is almost nil at this level.

CO: Being a bullion trader, do you think ETF is a good option for gold investments?

Hundia: At these high prices, we see only ETF demand for gold. This shows ETF is a better option rather than holding the physical gold in the form of coin or jewellery. However, the present gold rush may come to end at any time in future due to these ETFs. The prices are already at higher-end and those holding ETFs can book profit and exit at any time in near future. This may Lead to a severe downfall in the prices. ETF investments are good, but looking at the current levels of prices, I believe this is not the right time to invest in gold ETFs either.

CO: Do you see any other bullion metal emerging as promising as gold in coming months? Why?

Hundia: No. Gold has its own value and cannot be compensated or replaced by any other bullion metal. However, Silver would continue uptrend at par with Gold and may tread in the range of Rs.25,000 to Rs.32,000 per kg.

CO: What is your expectation gold will reach by Jan 2011?

Hundia: There cannot be an exact prediction for future gold prices, but I believe that the current gold rush will come to a halt very soon in absence of the real physical demand. Additionally, it is further expected that mining production this year will rise by 10%, which will add to the supplies bringing down the prices.

CO: Can you describe a post and pre-commodity exchange scenario for gold. What changes have come through?

Hundia: Gold buying in India is not a new phenomenon. People in India have been investing in Gold for ages, even when there were no exchange traded products. In that time, people used to hold physical gold, which involved lot of risk and storage concerns. But with exchanges coming into existence, the physical demand of gold started reducing and people started investing in gold products like ETFs.

CO: India is one of the largest consumers of gold in the world, then why can’t we have any say in price determination?

Hundia: This is what you said could be true some five years back. But today, the scenario has changed to a great extent. India has been a largest consumer and it has now a significant role in price determination in the international market. India’s gold price is purely based on demand-supply economics. More so, there doesn’t seem to be much activity in the international gold prices until India’s Multi Commodity Exchange (MCX) starts gold trading in the morning. However, it is a different matter that the dominance of MCX prices reduces as New York markets start trading. This way, New York Mercantile Exchange (NYMEX) still has a significant role in gold price determination.

CO: There is no parity in gold prices across the country. Are you in favor of one country one gold price?

Hundia: There is already a one country one price in India for gold, except for Mumbai, which is a bit costlier than other cities in India as far as gold prices are concerned. The import duty on gold is uniform across the country, which helps in keeping equal prices even at distant places. However, there are only marginal changes in the local taxes that cause differences in prices. Only Mumbai is a bit costlier than any other place in India that is due to high local taxes.

CO: More and more gold jewelry firms are getting listed in capital market? Does this mean the death knell of traditional gold shops?

Hundia: Gold jewellery market has remained unorganized and fragmented in India. More so, traditionally people preferred wearing bulky and large gold ornaments. This phenomenon has changed now. As fashion changes, people start liking fashionable and comparatively light-weight jewelleries with micro-art work. This requires larger industrial involvement. Traditional goldsmith can’t match with the fineness of organized players.

Secondly, handmade jewellery requires higher labour work, which makes it costly. However, this does not mean the death of traditional gold shops. But the people’s preferences are changing with rapid pace. And that is what making these companies making larger investments.

Post your comment  (4)

Connect:

Post to Twitter

Post to Facebook