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Rising inflation takes shine off gold

A somber mood prevails in gold markets across the country. The rising cost of living — inflation hit a 45-month high of 8.24 pc last week — and a weakening rupee has led to a slump in sales, reports Manish Pachouly.

business Updated: Jun 11, 2008 01:20 IST
Manish Pachouly

A somber mood prevails in gold markets across the country. The rising cost of living — inflation hit a 45-month high of 8.24 per cent last week — and a weakening rupee has led to a slump in sales.

March to May-end is usually peak season for gold due to the large number of marriages, but sales this year have been a mere 20 per cent of last year's, said Kumar Jain, vice-president of the Jewellers' Association, Mumbai.

Underlining the slump is the decline in gold imports — 550 tons in 2007-2008 compared to the average of 800 tons in previous years.

Jewellers blame the weakening rupee for gold prices heading north. Gold is presently selling for Rs 12,400 per 10 grams, and is fluctuating with the rupee.

It had hit a peak four months ago, touching Rs 13,800 per 10 grams, while two months ago it hovered around Rs 11,200.

"Besides this, inflation is playing a huge role. As necessities become costly, the common man's priorities change," said Jain.

With the onset of the monsoon, traditionally a slow season for gold sales, jewellers are a worried lot. "There will be hardly any demand for gold in the coming months," said Prakash Togani, a wholesaler.

He pointed out that the Secondary School Certificate (SSC) results will be out soon and that many would be busy with college admissions for their children. The Higher Secondary Certificate (HSC) results came out on Saturday and many would be busy with senior college admissions. Investing in gold would be low on the priority list.

"Also, parents would keep their money aside to pay for the higher education," said Togani, explaining the drop in demand.

He also said that the fluctuating prices have made many prefer silver and artificial jewellery. "Not everybody can afford the present rates," he said.

Seema Sharma, a Goregaon resident whose son is getting married around Diwali, is a worried consumer. "Everything's getting costlier, and so is gold. I may have to cut down tremendously on my jewellery purchase," she said.