Indian Gold Price: Wedding Spoiler?

August 28, 2012 at 08:12

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Bad news for Indian brides-to-be and those looking to splurge during festival season: gold on Monday hit an all-time high on bullion markets in the subcontinent.

Gold prices rose to Rs93,193 per troy ounce, as the precious metal remained a safe haven amidst the European crisis and slow US economic growth.

High prices bode ill for the current festival season, which lasts until roughly mid-November. The wedding season begins then and stretches into late January – both periods during which Indians purchase a lot of gold.

“[Demand] during the festival season won’t be that high for very obvious reasons,” said Karan Vasa, of the Bombay Bullion Association. “But India has a sentiment of its own… they’ll buy less, but they’ll still buy – it’s good luck, and it’s wedding season.”

Gold’s cultural importance during Hindu holidays and weddings cannot be overstated: India’s super-rich can spend in the range of $250,000 solely on jewellery for a single wedding. As beyondbrics has reported, India’s gold obsession extends across the socioeconomic spectrum, and the $950bn worth of gold held by Indian households is the equivalent of 50 per cent of the country’s nominal GDP in dollar terms.

India imports 92 per cent of its gold, making it the third largest of its merchandise imports behind crude oil and capital goods. That has helped to drive up the country’s current account deficit to record highs –hitting 5.45 per cent for the quarter ended in March.

In order to help depress demand, the government in March doubled the import duty on gold to 4 per cent, which the Bullion Association estimates has cut imports by 50 per cent so far this year. High prices are only likely to make things worse for the jewellery industry, said Atul Shah, commodities head at Emkay Global: prices could easily increase a further 10 per cent unless global economic events take a drastic turn in the right direction.

“Prices can come down only once the US and European economies stabilise, then the demand will shift from gold to sectors like energy – crude, natural gas – and base metals,” he said. “After that the [money] will start moving away from the safe haven of gold and toward the riskier assets.”

In other words, devoted Hindus, brides to be and their families: prepare to either pay more, or receive less this season.