India gold loses glitter, trade ignores elections
04:19 a.m. Feb 22, 1998 Eastern
By Anshuman Daga
BOMBAY, Feb 22 (Reuters) - India's gold trade has seen little activity
despite uncertainties over parliamentary elections because of a
perception the metal is losing its importance as a store of value in
times of crisis, analysts said.
''Demand is now getting more and more affected by international prices
rather than factors like general elections,'' said Ravi Vasantraj, vice
president at Mecklai Financial and Commercial Services.
Investors' inclination to buy gold during times of political uncertainty
and economic crisis is slowly diminishing after its relentless battering
in 1997, traders said.
''The elections have not affected our market in any way,'' Satish
Bansal, director of New Delhi-based M.D. Overseas Ltd, a leading gold
and silver importer, told Reuters.
India is in the midst of general elections, the second in as many years.
Voting in the country is staggered over five days between February 16
and March 7, apart from two snowbound counstituencies.
''In our trade it does not really matter which government comes to
power,'' New Delhi-based Bansal said.
''Whoever comes to power, it is not going to impact our market unless
there is a major policy change, which is very unlikely,'' he added.
India is the world's largest consumer of gold, using up to 500 tonnes
annually, most of which is imported.
Most opinion polls have given the main opposition nationalist Bharatiya
Janata Party (BJP) a fighting chance of forming the next government, but
it is expected to fall short of an outright majority.
But the BJP faced a severe setback on Saturday when a key ally deserted
it in a power sharing arrangement in the Uttar Pradesh state government.
The Hindu party's troubles have increased the chances of a fractured
parliament and another coalition government.
''Indian demand will continue to remain high for lots of time to come,
but the pace of consumption will taper off,'' Vasantraj said.
Indians' affinity with gold has traditionally been driven by consumers
who buy gold at every family occasion, passing it on as heirlooms from
one generation to another.
Around 10 million marriages take place every year across India, each
requiring at least 30 grams of gold, which altogether work out to 300
tonnes, Bombay Bullion Association (BBA) estimates show.
''The rural folk who do not have access to financial markets feel that
gold is a safe investment,'' said R.V. Joshi, general manager at Bank of
India.
But in urban centres where people have been aware of the falling in
international prices, the lure of gold is diminishing rapidly.
International gold prices had tumbled to 19-year-lows earlier this year,
hit by relentless news and rumours about central bank sales, but has
since recovered to trade near $300.0 an ounce, up from a low of $280.0.
''Structurally and permanently, the value of gold has eroded from the
previous time when central banks used to treat gold as a safe haven,''
R. Ravimohan, managing director at Credit Rating Information Services of
India Ltd (CRISIL) said.
Gold is increasingly being used for jewellery and ornaments rather than
as a hedge against inflation, said Makhan Lal Damani, president of the
BBA.
India's gold holdings are estimated at around 9,000 tonnes, accumulated
over generations and mainly comprising family heirlooms and jewels
forming part of dowry gifts. ^REUTERS@ |
