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Gold price does not fall despite poor demand

Wonder why you are not able to afford gold these days despite it being off-season?

business Updated: Jul 16, 2012 00:46 IST
Manish Pachouly

Wonder why you are not able to afford gold these days despite it being off-season?

Blame it on investors, many of who are investing heavily in gold without physically buying the yellow metal.

The demand for gold is traditionally low during the monsoon. The price of gold, however, has been rallying between Rs29,000 and Rs29,500 per 10 grams, despite the poor demand.

Market experts said investors who had purchased gold while it was touching its peak (crossing the Rs29,500 mark), are trying to maintain the price level, in the absence of physical demand in the jewellery market, by holding on to the yellow metal.

Most of the investors are doing this through paper gold. Paper gold is investment in bullion on the lines of shares, and it impacts the price of the yellow metal. “The demand for gold in the jewellery market is hardly 10% of what it is during the peak season,” said Kumar Jain, vice president of Mumbai Jewellers Association and owner of Umedmal Tilockchand Zaveri at Dagina Bazar in south Mumbai.

When asked why the price is not falling in proportion to the poor demand, Jain said that investors are frequently purchasing the yellow metal, mostly paper gold, to maintain the price so they don’t suffer losses.

“During the peak season when the actual demand will go up, the investors will make profits, as the price would then move upwards,” said Jain.

Pankaj Bafna of Bafna Jewellers at Dagina Bazar agreed with Jain. He said:“Investors hold on to paper gold till the festival or marriage seasons, when the demand goes up. Once the price shoots up due to demand, they sell it and make profit.”

The Bombay Bullion Association members too agree that there has been huge investment in gold; however they differ on the mode of investment.

Prithviraj Kothari, president of Bombay Bullion Association (BBA), claimed that investors are purchasing gold physically. “They are investing in gold because returns are high and it is safe," said Kothari. He added that currency fluctuation is one of the factors diverting investors towards gold.

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