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Record High Gold Prices Do Not Impact Consumption in India

  • Anjana Pasricha

Customers look at gold jewelry at a shop on the occasion of a Hindu festival 'Akshay Tritiya' in Allahabad, India, 16 May 2010

Customers look at gold jewelry at a shop on the occasion of a Hindu festival 'Akshay Tritiya' in Allahabad, India, 16 May 2010

Record high prices of gold have failed to dent its consumption in India – the world's largest market for the precious metal.

R.K. Garg, 50, and his wife are shopping for gold earrings at the Gold Souk Mall in Gurgaon, close to New Delhi. Prices are up by 25 percent since he bought gold jewelry for his daughter's wedding last year, but he says he has no choice except to buy another piece.

"For the first anniversary we have to give some gift to her," Garg said. Model displays newly launched gold jewelry on the eve of Hindu festival ‘Dhanteras’ in Calcutta, India (file photo)

Model displays newly launched gold jewelry on the eve of Hindu festival ‘Dhanteras’ in Calcutta, India (file photo)

A centuries-old tradition of gifting gold at marriages and other occasions and buying it during festivals is keeping the gold market buoyant in India, although prices are hovering around $1340 an ounce – an all-time high.

The economic recession and a drought had led to a sharp fall in demand, last year. But those memories have faded as the Indian economy grows briskly once again and good rains this monsoon season boost farm incomes.

Wedding season, new designs

As the main festival and wedding season gets underway, jewelers are getting ready with new designs and attractive offers to lure customers.

Rajinder Bhola's jewelry shop at the Gold Souk is buzzing with customers. He says he sees fewer casual customers walk in to buy pieces of jewelry, probably due to the high prices.

But Bhola says demand for jewelry to be presented at weddings remains consistent. And, in a country where two-thirds of the billion-plus population is under 30, the number of marriages is on the rise.

"The growing population, and then the weddings, and then very basic needs like all women in India wear a chain, and ring and bangles, these are the primary things which people have to buy," said Bhola.

Good investment

It is not just the cultural affinity with gold that continues to fuel demand.

In Mumbai, Associate Director at the World Gold Council in Mumbai, Keyur Shah, says the massive jump in prices in recent years has only reinforced the centuries-old belief that gold is a time-tested asset.

"Indian consumers are not afraid of the price level," Shah said. "In fact it reiterates their confidence if prices consistently go up in gold. They always feel they made a wise decision to buy gold say two years back and wish they had bought more."

Belief that gold is a good investment is also spurring the sales of gold coins and gold bars. And, it is not just prosperous, urban centers where gold is selling. Demand is also high in rural areas where other investment options such as banks and stocks are limited. Rural areas account for nearly two-thirds of gold purchases in the country.

A report by the World Gold Council says India and China are set to be the driving force behind gold demand.

The World Gold Council's Shah says prosperity is driving demand in these countries.

"If you look at the retail demand globally, consumption in India and China is on the rise and it is mainly due to rising incomes of the middle class," he added.

That includes people like Somya Misra, who will be getting married in January. She is going around jewelry shops to decide what she would like to pick up. The bride-to-be is not worrying about prices, but what pieces she wants.

"If marriages are happening, people are buying gold, irrespective of price, so I think till the time marriages continue in the same spirit in India, the purchase of gold is going to be high," Misra said.

That is what jewelers across the country are hoping will happen, helping them pull in good profits.

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