India's gold market is set for its biggest day of the year on Thursday for the Dhanteras festival, but expectations are sales could fall by as much as 75 per cent from last year as prices have hit record highs.
Dhanteras, when Hindus buy precious metals in the belief it would invoke prosperity, generally accounts for sales of 15-20 tonnes of gold. But when consumers throng to jewellery shops and banks on Thursday, they are expected to look for smaller items.
"This year, our new initiative has been the 2 gram coin," said an executive in a private bank in Mumbai. "Smaller coins are definitely going to sell more," the executive added.
Traders and dealers said high prices, inflation and the economic slowdown are turning people into cautious buyers.
"I don't think this Dhanteras we will be able to get anywhere close to the 15-20 tonnes we normally sell," said Suresh Hundia, president of the Bombay Bullion Association in Mumbai.
"It might fall by 75 per cent."
Gold prices in India hit an all-time high of 16,048 rupees on Tuesday, and were trading around 15,960 on Wednesday afternoon. In international markets, gold rose to record highs above $1,070 an ounce.
Prithviraj Kothari of Riddisiddhi Bullions Ltd, a large wholesaler in Mumbai, said sales may fall by about 40 per cent this Dhanteras.
"Usually by this time, all stocks get lifted. This year, it is not so," Kothari said.
GOLD INVESTMENT GROWS
Dhanteras is also expected to show Indians' growing love for gold as an investment in the form of coins and bars rather than jewellery.
Jewellers and traders said the shift towards buying bullion over the past 4-5 years was here to stay as more consumers realise it is the more economical way to buy gold.
"Now even small investors have started buying gold coins. They collect it for their children," said Harmesh Arora, director of NIBR Bullion Pvt Ltd, a Mumbai-based gold refinery that sells coins.
"Corporate sector has also started gifting coins to their staff and dealers... many of their free gifts with products also have gold coins," Arora added.
World Gold Council data shows India imported 211 tonnes of gold in 2008 for investment and 501.6 tonnes for jewellery. The current share of investment gold is 30 per cent of the total market, although the growth of recent years may now slow. "In five years, the share may increase to 32 to 35 per cent," said Nayan Pansare, an analyst who works for jewellery exporting companies.
"Other forms of investment in gold such as mutual funds and exchange traded funds are likely to catch on."