Spiralling rupee clamps down on golden spree

C Shivakumar

Chennai:

The huge rush to buy gold at the city’s jewellery shops is slowly petering away and jewellers have attributed the dwindling  sales to the falling rupee; which hit a new low against the dollar. “The interest in gold slowly declined as the Indian rupee started declining,” says the managing director of NAC Jewellers, N Ananta Padmanabhan.

He told City Express that when the prices of gold fell between April 14 and March 1, every day was like Akshaya Tritya for them. Why? Because, during that phase many jewellery shops in Chennai witnessed a 60 to 70 per cent increase in sales. Not only were there massive footfalls every day, some people even went to the extent of taking loans to buy ‘cheaper’ gold. “It was a mad rush and people overbrought the yellow metal,” says Padmanabhan. A weaker rupee raises the price of the yellow metal, as most of the country’s gold requirement is imported.

“The sales are flat now and it is believed that the rupee is likely to plunge further by five per cent,” claims Padmanabhan.

However, the nearly 20 per cent plunge in gold prices since the start of the year has reignited India’s passion for gold with many people finding it a safe bet. “I used to invest in the stock market and burnt my fingers during the global economic meltdown. Now I prefer to invest in gold,” says Senthil. He says that as of now, investing in gold and land is safe and profitable.

However, a section of people who had pledged their jewellery in bank are distraught over the falling prices. “I availed a loan of one lakh rupees after I pledged a couple of gold bangles and a chain. Now, with the fall in prices, the bank, after renewing my loan, is offering only `80,000. I have to use other means to make up for the remainder,” says Ganesh, a worried customer.

India Ratings director Deep N Mukherjee feels that gold buying will increase, if the rupee depreciates. “Gold is a hedge against uncertainty and not a hedge against inflation,” he says. Mukherjee says that the fall in buying after the 60 to 70 per cent growth in gold sales could also be attributed to the savings rate of people, which is falling drastically.He adds the fall in global gold prices is temporary and will rise again.

Jewellers feel that in India everything depends on the stable economy. “We need to grow at around six per cent for the immense buying of gold to continue,” says Padmanabhan. He warns that the profits of jewellers who sell at a low margin will be affected as the rupee falls.