Gold price may cross Rs 35,000 by year-end: Assocham

Gold prices in the domestic market may cross Rs 30,000 per 10 grams ($55,555 per kg) during the June-August quarter registering a strong recovery on account of myriad reasons ranging from slowdown in inflow by foreign institutional investors (FIIs), rising headline inflation, rupee depreciation, growing signs of fatigue in the realty sector to pent up demand by jewllery manufacturers and traders in wake of India’s annual wedding and festive season, industry confederation ASSOCHAM said.

The price might touch Rs 35,000/10 gm by the turn of this year, The Associated Chambers of Commerce and Industry of India added. Current price is about $49,000 per kg.

Besides, net gold imports in India might also reach about 1000 tonnes in 2012-13 from about 933 tonnes worth $59 billion in 2011-12, it added.

“Lack of clarity on tax implications resulting in likely affect on old transactions has led to massive slump in FIIs inflows which has compelled investors to move out from capital and commodity markets and invest in bullion (both cash and ETFs) to hedge against inflation and get good returns,” said Mr D.S. Rawat, secretary general of ASSOCHAM.

“Besides, weakening rupee against the dollar due to trade imbalance together with soaring current account deficit, slowing exports on account of falling growth in the US and Euro-zone and aforesaid reasons will lead to upwards spiraling of gold prices.”

“Apart from this, the annual festive and the wedding season is likely to swell demand for gold which will fuel sale of jewellery and drive up imports of the precious metal, more so as the government has rolled back the one per cent excise duty on gold jewellery,” said Mr Rawat. “Even the rural households who have received huge compensation from sale of land are investing heavily in gold considering it as the safest investment bet and its liquidity.”

A three-week long strike by gold traders and jewelers together with a lean period in March-April had resulted in a temporary lull vis-à-vis gold imports which might have tanked significantly by over 50 per cent.

Considering that gold holds immense traditional value during the festive season and weddings in India, its imports will increase in all probability to meet the surging requirement during the months of June-August, said ASSOCHAM.

“We might witness a surge in pre-bookings, buying by stockists and retailers, purchase of gold by consumers in terms of physical bars, coins, gold exchange traded funds (ETFs), rings and other jewellery with the onset of wedding season across the country,” said Mr Rawat.

ASSOCHAM also interacted with about 200 goldsmiths, jewellery manufacturers and retail jewellers in Ahmedabad, Chennai, Delhi (Chandni Chowk) and Mumbai (Zaveri Bazaar) during the course of last 20 days to ascertain the gold trading sentiment in the current scenario.

Majority (55 per cent) of respondents in these cities said gold imports are expected to swell during the quarter of June-August as they brace up for the marriage season. Besides, many even said gold is one of the best investment products available and its traditional appeal remains intact compared to all other investment instruments.

About 60 per cent of respondents said they are closely watching the situation and opined that weak recovery in the US economy and persistent troubles in the Euro-zone will enable gold prices to rise further and many even reckoned it might reach Rs 35,000/10 gm by the end of the year.

Almost all the respondents said that with investors shifting funds from stocks to bullion, it will also play a major factor in pushing up gold prices and imports significantly.