Last Updated : 08 November 2012 at 15:30 IST
In an e-mailed interview, with Rakesh Neelakandan ofCommodity Online, Mukesh Kothari, Director of Riddisiddhi Bullions Limited, Mumbai, speaks about the impact on gold prices as Obama retains his chair, prospects of a monsoon failure looms, and festive & rural demand plays their part.
Where do you see gold after the US Presidential elections?
Most powerful man of the world is here: US President Barack Obama. As we see him march towards his second term we expect the commodity markets to march ahead too.
Obama has always been the markets' favorite. His win will bring in positive sentiments for the market.
Romney was considered as a threat to gold prices as he did not believe in the policy of printing currency to accelerate the economy.
This would have inevitably resulted in the dollar strengthening in short term, which would have had a reverse correlation to the price of gold; as the dollar strengthens the price of gold often declines.
Nonetheless, gold will be hitting the roof in the days to come. Re-election of Obama means that Fed Chairman Bernanke stays his term and the monetary measures remain more or less unchanged.
In the short and medium term, gold is expected to move in the range of Rs. 30,000- Rs. 30,500 per 10gm on the lower side and Rs.32, 000- Rs.33, 000 on the higher side.
In the long term gold is expected to move in the range of Rs.29,000- Rs.29,500 on the lower side and 33,000- 35,000 on the higher side.
Are there any negative signs from the markets regarding festive demand of gold? Is the demand in line with your expectations?
Gold demand was expected to be around 40% lower compared to 2011. However, the recent dip in prices has increased the demand for gold leading to heavy buying by stockists and retailers despite weak global trends.
Till last week gold traded at 30,700 per 10gm in the physical market. Gold was trading at an 8 week low in the international markets. But the week opened with an upward movement for gold and by Tuesday gold was seen trading at around Rs. 31,400 in the domestic markets.
Considering a further price hike, people have already started buying gold for Diwali which in turn has pushed up the demand.
Overall it has been a good festive season than what was expected.
What is your anticipation of volumes in gold imports by India?
Gold imports can be expected to range between 650 to 700 tonnes. In 2011, India imported 933.4 tonnes of gold, down 7% from an all-time high of 1,006.3 tonnes in 2010, according to World Gold Council.
The North East monsoon is reportedly going to be a failure. How will the materialization of this scenario affect rural demand?
Bad monsoon for India means a drop in the purchasing power of rural areas. Failure of the North East Monsoon will result in a slack in demand. 70% of the gold sale comes from the rural areas. However, this year it’s expected to be lower than 2011 figures.
Gold has been hit in every ways. There is a liquidity crisis because of high interest rates and the monsoon was not very good in some states (so purchasing power will be low), the whole cycle of investment has slackened. The equity markets and real estate are both slow; so it is affecting gold.
How wide is the gap between urban and rural demand of gold in India?
I won’t be able to give the exact stat for the gap between the demands. But rather than the gap, gold has always been in demand. Family in India is the core of Indian society. Grandparents and parents are the Elders who are deeply respected even amongst the most educated urban Indians. Their offspring usually follow their recommendations, even on family investments.
The family sits at a level of importance that is far higher than governments. Family finances are not linked to the banking system as in the developed world.
Morgan Stanley indicates that the demand for gold will be split equally among investments and 'life events' (which includes marriage or other ceremony, religious occasions, gifting, fashion statements and the like) and discretionary consumption.
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