Tis the season for gold buying in India soon.
Analysts believe that the physical demand for gold should pick up now that Indian jewelry shops have ended a major strike. While this demand is guaranteed, it remains to be seen just how strong it will be AND whether any protests will resume again next month.
Recently, a majority of India’s jewelers closed their shops for about 3 weeks in order to protest the doubling of their import tax on gold, from 2% to 4%, as well as the advent of an excise tax of 1% on all unbranded gold jewelry. Late last week, upon Finance Minister Pranab Mukherjee offering assurances that he would 'consider' a rollback of the excise duty, jewelers reopened their shops. Barclays Capital precious-metals analyst, Suki Cooper, pointed out that jewelers have said they will be remain reopened through May 11, pending a favorable announcement on the removal of the excise tax on unbranded jewelry. She also states that nevertheless, the reopening should support prices in the near term at a time when Indian demand for gold tends to be prominent.
Jim Steel, an analyst at HSBC, stated that "The majority of India’s jewelry industry comprises of small shops and of the two tax increases, the excise tax is viewed as more onerous for smaller jewelry stores to comply with, according to Indian merchants." For those of you that don't know already India, along with China, is one of the world’s two largest consumers of gold.
And the timing of the end of the strike couldn't come at a better time, what with India's major gift-giving Akshaya Tritiya festival on April 24th approaching soon. "Though too early to tell, the re-opening of the Indian jewelers for business last Saturday should bring out the pent-up demand," says Austin Kiddle, director of Sharps Pixley. "The Indian consumers will gear up for the Akshaya Tritiya festival…as well as the wedding season. Physical demand, especially from India and China, is the key supporting factor for investment demand for gold."
We also have some decent, albeit premature, confirmation of this 'imminent gold rush.' Thus far, physical buying from India has indeed been reported following the end of the jewelers strike over the weekend per Alex Thorndike, a metals and forex dealer with MKS Finance. "With the Akshaya Tritiya festival coming up on 24 April in India, it is likely that merchants and jewelers in the world’s largest gold consumer will look to replenish stocks,” he said. The Times of India also reported that "Shoppers were back in T Nagar this weekend two days after jewelers called off a nationwide strike against an increase in import duty on gold, but traders say business lacks sparkle."
Resounding this concern for avoiding overly optimistic celebration, UBS precious-metals strategist Edel Tully described the demand as being "modest" so far. She says that gold, which fell roughly 10% from the late-February high to last week’s low, needs physical buying in order to turn a corner and build momentum. “The end of the jewelers strike in India provides a good foundation, especially with the Akshaya Tritiya festival on April 24,” she mentioned. "But prices need to be appropriate. Last week, Indian demand only became impressive when gold traded below $1,620. Appetite from India so far this week has been quite modest." This conservative view is definitely something to consider. Despite what any analyst says or what any rumor or technical charting may insinuate, everything comes down to PRICE. At the time of this writing, gold is trading at around $1,659, about $40 more expensive than last week's more attractive levels.
HSBC’s Steel cited a Financial Times report by saying that closures of the jewelry shops were met with fresh demand for 'saving certificates' redeemable for bullion as an alternative to physical gold buying. “Since the protest began, interest in alternative forms of bullion indicates the level of pent-up demand for gold and the resumption of the Indian jewelry market as shops reopen is gold bullish, we believe,” Steel says.
All in all, gold could definitely use this pent up demand and hopefully lift off with the holiday boost. With gold trading rather flat these past few weeks, it will be quite interesting to see how gold performs in correlation with such a large gold consumer as India.
Be safe, be wealthy and above all else, be happy.
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