India's traditional bullion investment is on a decline due to slipping prices of the yellow metal amid a weak global trend. The constant fall in the price of gold over the past year has shaken the faith of the Indian buyer-- one of the biggest consumers of gold and other precious metals.
Currently, gold is being sold for around ₹27,000 per ten gram.
Gold reached its highest at ₹35,074 per ten gram in August 2013, but then onwards the bullion prices have slipped steadily aided by weak prices overseas and a strengthening rupee.
Indian bullion expert Harish Galipelli from Inditrade Derivative and Commodities Ltd. told Reuters that India's demand for gold will largely remain unaffected mainly due to traditional reasons such as offering gifts and decorating Hindu temples.
"But as the banking network expands and literacy rises, people in rural areas will explore other investment products like mutual funds and bank deposits. The mindset is slowly changing."
Gold is the second-biggest item on the import bill after oil. According to Reuters, if the nation's love for gold fades away, it would help India's external deficit.
The investment demand for gold declined by 67% in the June quarter from a year ago to 49.6 tonnes, according to World Gold Council (WGC). Industries and WGC have estimated that demand for this precious metal would halve to 190 tonnes in the current year. Investment demand in India was 37% of total 2013 gold sales.
Indian gold exchange-traded funds have suffered 15 straight months of outflows. On the other hand, Indian stock indices have been recording high, while $50 billion has flowed into mutual funds in the financial year starting from 1 April which is six times more compared to previous year.
A decade of steady surge in gold prices till August 2013 led investors to buy this expensive metal, but the scenario is changed now.
"The 11-year rally in gold prices created a perception that they will only go up. This price fall has broken that conviction," Reuters quoted Prithviraj Kothari, vice president of the India Bullion & Jewellers' Association.
"During uncertainly, people chase gold. Now, since we have stability, economic growth will revive. It will ultimately push up the stock market and real-estate prices," Kothari added.
Moreover, a major push by the BJP government for every household to get a bank account under the Pradhan Manti Jan Dhan Yogana scheme could take the focus off gold investments.
Five Reasons: Why Investors are selling gold?
A major reason for the gold nosedive is RBI easing import restriction on gold, reported NDTV.
- Easing of Import Restrictions by RBI led to a decline of ₹800 in gold prices on 22 May this year. The apex bank expanded the number of private agencies that can import the precious metal while allowing banks to provide gold loans to the sector.
- Anticipation of Price Dip by bullion traders: Nation's current account deficit slipped more than half to $32.4 billion in FY14 from $88 billion in FY13. The rupee also strengthened which helped the cost of imported gold decline and gave more space to ease import restrictions.
- Seasonal demand: Generally gold demand in India surges during festival or wedding season.
- Falling investment demand: Total demand during January to March in 2014 slipped by 54% at 44.7 tonnes from 98 tonnes in the same quarter last year, according to World Gold Council. Analysts opined that, with Indian stock markets surging, interests in gold as an investment asset is likely to remain gloomy.
- Decline in Global gold prices