August 11, 2008

Gold: Losing Its Lustre

By K.R. Balasubramanyam

At current price levels, consumers do not seem to be charmed by gold. The import of the yellow metal has declined substantially since January this year if Bombay Bullion Association figures are anything to go by. In the six months since January, India imported 162.20 tonnes of gold as against 313 tonnes during the same period last year that's a staggering 48 per cent drop. A leading jeweller in Bangalore says the demand is dipping due to soaring prices, which stood at Rs 13,285 per 10 grams (on July 17). He puts the drop at around 30 per cent in the south and over 50 per cent in the north over last year.

However, jewellers don't agree their businesses are suffering. The transactions, they say, have gone up in value terms, if not volume terms.

According to one jeweller, fashion jewellery, for which there is a growing demand, requires more of add-ons like gems and stones, and not much of gold. That pushes up the value of the product, even if it has less of gold. Also, the number of people trading their old jewellery for a new piece has gone up as they don't want to buy gold at the prevailing prices. And you thought the demand for gold at least in India was price inelastic!

K.R. Balasubramanyam

(c) 2008 Business Today. Provided by ProQuest Information and Learning. All rights Reserved.