In Time For India’s Diwali, Gold Gets Its Sparkle Back

The traditional surge in gold demand from the Hindu Festival of Diwali was expected to be muted by Indian jewelers until early this month.

Efforts to increase financial transparency and a government crackdown on the black market had caused a slump in sales and the industry was struggling to cope with that slump.

In August, in a move that jewelers likened to being bracketed with those selling arms and ammunition, a decision to bring them under the Prevention of Money Laundering Act dealt a fresh blow them.

Freeing customers from a requirement to provide their tax identity for every purchase above 50,000 rupees ($772), vigorous lobbying persuaded the government to reverse the decision. According to Metals Focus Ltd., a positive change in sentiment before Diwali this week, was brought and the mood was lifted by the backtrack even while the move will be reviewed.

“It’s a good thing for the market that there’s a government who is ready to listen,” said Chirag Sheth, a Mumbai-based analyst at the precious metals research firm. “The implementation of the rule was cumbersome for the trade.” Purchases in the two weeks that run up to the Dhanteras festival on Oct. 17, two days before Diwali, usually total 20 to 30 metric tons and they may now be higher because of this latest shot in the arm,” he said.

In terms of buying gold, Dhanteras is the biggest and most auspicious day. Seth said that sales for the full year are seen recovering 5 percent to about 700 tons from 2016, with the money laundering curbs damping purchases during the seasonal monsoon, the three months through September were a “washout” in terms of demand. Since 2009, last year was the worst for demand.

The Indian gold industry will almost certainly be a subject of discussion at the London Bullion Market Association conference in Barcelona, also taking place this week as clouds over the Indian gold industry haven’t been swept away entirely.

“The 50,000 rupees limit has been removed by the government, but we are again waiting as they may come out with a new ceiling,” said Ketan Shroff, joint secretary at the India Bullion and Jewellers Association Ltd. He said that jewelers will have to be strict at maintaining records of sales “because the scrutiny may come anytime at a later stage,” and the industry has been spooked by repeated government interventions.

“Consumers have had to contend with a hell of a lot of changes in the last year,” Simona Gambarini, a commodities economist in London at Capital Economics Ltd., said. “Modi seems to be introducing new regulations every month. It’s bound to impact demand.”

Harish Galipelli, head of commodities and currencies at Inditrade Derivatives & Commodities Ltd., said that Indians will continue to make their traditional gold token purchases. He said that and added: “I am looking at a comfortable 20 percent appreciation in prices over the next year”. Gold prices in India are down about 8 percent from last year’s high.

(Adapted from Bloomberg)

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